Please accept my gratitude for the excellent work you are doing. This has been a very very informative website. I have a doubt regarding redemption of funds. I have invested in direct growth equity funds only ( large cap, multi cap, mid cap, small cap and equity oriented balanced funds). The returns of the funds, what I have noticed, is maximum mostly in 1 year horizon. Now suppose, if a fund gives 35% return after completion of 1 year of investment, what if I redeem that fund and invest again? My doubt is, how in this case, long term investment is beneficial for growth funds if returns are say, 35%,25%,22%,20% respectively in 1, 3,5,7 years. Shouldn't I redeem after 1 year for getting maximum returns? Please advise?
Thanks for the kind words about our website which we truly appreciate.
Your assumption about 1 year return being mostly the highest is wrong! Let us see how?
1) You found the one year returns higher as the markets did well in the last one year and so did the fund!. In this case the fund gave 35% return in one year.
2) Any mutual funds research website shows return upto one year in absolute terms. That means if the return is 6% in 6 months, then it is absolute 6%. In your case the absolute return in one year is 35%. However, when the returns above one year is shown, it is annualised. In your case the 3, 5 and 7 year return are 25%, 22% and 20% are annualized . That means the fund gave each year average 25% returns (in case of 3 years), 22% average each year (in case of 5 years) and 20% average each year (in case of 7 years).
3) That means, in case of 5 years the fund gave 140% absolute returns (20% average per annum x 7 years), for 5 years the absolute return is 110% (22% average x 5 years) and for 3 years the fund gave 75% absolute return (25% average annual return x 3 years).
4) Now, let us see what happens if the fund gives 10% return in the 2nd year after giving 35% returns in the 1st year. Therefore, the average returns of 2 years would be 22.5% (35% + 10% / 2) and the absolute return would be 45% (35%+10%)!
5) However, there could be periods when the returns may even be negative during a year. Now suppose, in the 2nd year the return is -10%, then the average return for the period of 2 years would be 12.5% (35% + -10% / 2 ) and absolute would be 25% (35% + -10%).
Hope you can now understand how to read the mutual fund returns and also know why redeeming after 1 year and reinvesting again will not enhance the returns.
Thanks for writing to Advisorkhoj.
FAQs
What are large cap mutual funds?
| Large Cap funds | 1-year-return (%) |
|---|
| Quant Large Cap Fund | 56.31 |
| Bank of India Bluechip Fund | 49.09 |
| JM Large Cap Fund | 47.09 |
| Nippon India Large Cap Fund | 46.42 |
4 more rowsApr 8, 2024
Historically, mutual funds tend to underperform compared to the market average during bull markets, but they outperform the market average during bear markets.
Why should you look at a funds performance over more than one year? ›
You can get a better picture of a fund's performance by looking at how the fund has performed over longer periods and how it has weathered the ups and downs of the market. Consider the fund's portfolio turnover rate.
What is a good annual return on mutual funds? ›
Yes, a 10% return on a mutual fund is considered a good return. What is the average ten-year return on mutual funds in India? The average ten-year return on mutual funds in India is 20%. Mutual fund performance is directly correlated with market dynamics.
What is a good 1 year return on investment? ›
General ROI: A positive ROI is generally considered good, with a normal ROI of 5-7% often seen as a reasonable expectation. However, a strong general ROI is something greater than 10%. Return on Stocks: On average, a ROI of 7% after inflation is often considered good, based on the historical returns of the market.
Is mutual fund good for 1 year? ›
Investors with an investment horizon of at least one year: Short-duration funds are usually recommended for investors who are willing to stay invested for at least one year; in fact, a horizon of 1-3 years may be better to get the best returns.
Which type of mutual fund gives the highest return? ›
Here are 5 mutual fund schemes with highest 3-year returns along with their expense ratios: Quant Small Cap Fund(G) tops the chart with over 39% returns followed by Quant Mid Cap Fund(G), Nippon India Small Cap Fund(G), Quant Flexi Cap Fund(G) and Motilal Oswal Midcap Fund-Reg(G) in the same pecking order.
What mutual funds have the highest returns? ›
Best-performing U.S. equity mutual funds
| Ticker | Name | 5-year return (%) |
|---|
| STSEX | BlackRock Exchange BlackRock | 16.27% |
| USBOX | Pear Tree Quality Ordinary | 16.13% |
| FGLGX | Fidelity Series Large Cap Stock | 16.08% |
| PRCOX | T. Rowe Price U.S. Equity Research | 16% |
3 more rowsMar 29, 2024
Summary: Best Mutual Funds
| Fund (ticker) | 10-Year Avg. Ann. Return |
|---|
| Shelton Nasdaq-100 Index Investor Fund (NASDX) | 18.21% |
| Schwab Fundamental US Large Company Index Fund (SFLNX) | 11.71% |
| Fidelity Intermediate Municipal Income Fund (FLTMX) | 2.28% |
| Dodge & Cox Income (DODIX) | 2.52% |
6 more rowsApr 1, 2024
Many people consider total return the most accurate measure of performance. To compare the total returns of two or more funds, you use percent return, which is a fund's total return divided by your initial investment.
Common technical indicators that can help evaluate a mutual fund as a good or bad investment include trendlines, moving averages, the relative strength index (RSI), support and resistance levels, and chart formations.
How do you check if a mutual fund is doing well? ›
Share
- Read Fund Facts.
- Compare it to other mutual funds. Use resources like Globefund or Morningstar to see how a mutual fund is performing relative to other similar funds.
- Use a benchmark.
- Add up the fees. ...
- Disclosure documents. ...
- Review account statements. ...
- Consult your advisor. ...
- Follow stock market news.
The one-year category average of all equity diversified funds was 14.6%.
How much return do mutual funds give? ›
Mutual Fund Calculator
| Fund Name | 5Y Returns (Annualized) | VRO rating |
|---|
| ICICI Prudential Focused Equity Fund | 21.15% p.a. | 27.02% p.a. |
| SBI Large & Midcap Fund | 19.97% p.a. | 24.51% p.a. |
| Quant Mid Cap Fund | 34.21% p.a. | 41.41% p.a. |
| Mahindra Manulife Multi Cap Fund | 25.80% p.a. | 29.85% p.a. |
Some of the advantages of mutual funds include advanced portfolio management, dividend reinvestment, risk reduction, convenience, and fair pricing, while disadvantages include high expense ratios and sales charges, management abuses, tax inefficiency, and poor trade execution.
Which mutual fund gives 20 percent return? ›
What are ELSS funds?
| ELSS Funds | 3-year-returns (%) (regular) |
|---|
| Kotak ELSS Tax Saver Fund | 21.11 |
| Motilal Oswal ELSS Tax Saver Fund | 25.21 |
| Nippon India ELSS Tax Saver Fund | 21.96 |
| Parag Parikh ELSS Tax Saver Fund | 21.76 |
8 more rowsApr 21, 2024
Quant Small Cap Fund, Quant ELSS Tax Saver Fund, and Quant Mid Cap Fund gave 37.86%, 31.67%, and 31.66% returns, respectively, in the last five years. This small cap fund gave 31.37% return in the last five years. The scheme is benchmarked against Nifty Smallcap 250 - TRI, which gave 24.82% in the same time period.
Which mutual fund gives 40% return? ›
Nippon India Large Cap Fund
5, this fund from Nippon has also given more than a 40 percent return (42.63 per cent) in the last one year. It has beaten its benchmark, the NIFTY 100 Total Return Index, by a large margin. The fund's AUM is Rs 22,608.50 crore, while its NAV is Rs 83.6231.
