While most analysts suggest to invest in mutual funds for the long term, it's really also about timing, which enables you make money.
To be honest, even in the long term, at best you can get a return of 10 to 15 per cent from equity mutual funds, if you are extremely blessed. After that you pay taxes and your returns are lower. The feeling these days is that equity mutual funds is an exceptional way to make money. This is not true. The returns are not exceptional or phenomenal.
Moderate your expectations
Let us take an example of ICICI Prudential Bluechip Fund, one of the large equity schemes, which manages money in excess of Rs 22,000 crores under the scheme. The 1-year returns has been 5.62 per cent, the 3-year returns has been 11.02 per cent and the 5-year returns is 11.28 per cent. Now, this is the same story with many equity mutual funds. We are writing this merely to inform readers that do not expect abnormal returns. In fact, there is a possibility that even your capital maybe eroded, especially if your investing in equity mutual funds. So, one needs to really moderate their expectation on returns.
When to withdraw money from mutual funds?
If you have made abnormal returns, it would be a good idea to pull money off the table. A couple of years back, some small cap funds gave returns as high as 30 to 40 per cent annually. It would have been a good idea to at least partially withdraw money. Today, they are struggling to make returns. In fact, the one year returns in some of these has turned negative, following the crash in small and mid cap stocks.
It may now not be a bad idea to switch from large cap equity funds to small cap equity funds, as the NAVs of the latter have to some extent turned attractive. So, an amount of active participation is needed.
May need expert advise
In case you are not able to understand funds or the markets, it would be best to seek expert opinion. Most brokerage firms can offer you advise free of charges. Some of them obviously get commission from mutual funds. The one thing that you must also realize is that if you are in your late 40s and early 50s, it would be more prudent to invest a larger part of your corpus in debt funds.
However, if you are young and have age on your side, it would simply make sense to stick to equity mutual funds. The best way to invest would be through the SIP route in order to hedge your risks. The markets have been extremely volatile over the last few years.
This article is strictly for informational purposes only. It is not a solicitation to buy, sell in securities or other financial instruments. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author of this article do not accept culpability for losses and/or damages arising based on information in this article.