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Will you always get at least 12% return from mutual funds?

This article shows under which circumstances you can reasonably expect a 12% or higher return from your equity mutual funds.

Will you always get at least 12% return from mutual funds?


Posted on 19 Jun 2024
Author: Sayan Sircar
4 mins read
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This article shows under which circumstances you can reasonably expect a 12% or higher return from your equity mutual funds.

Will you always get at least 12% return from mutual funds?

📚 Topics covered:

Why is there a focus on getting 12% returns from mutual funds?

SIP Calculator with 12% returns

SIP Calculator Image copyright Groww.com

Getting a 12% return on the long-term from mutual funds is something you will see everywhere:

  • social media content on Facebook, Twitter (X), Instagram and YouTune
  • pitches from advisors who want you to invest via them
  • default setting in web-based SIP calculators

Another popular pitch talks about reaching ₹1 crore by investing 15,000/month for 15 years and getting 15% returns: The myth of the 15x15x15 or crorepati rule for mutual funds in India

We will use historical data of the Nifty 50 TRI index that includes Nifty price movements and reinvested dividends and see how much the chance of getting 12% or higher returns.

We will show the results for rolling returns for lump-sum, fixed SIP and 10% step-up SIP.

When can you get 12% returns?

As the data below shows, for longer investment periods, the chance of getting a return of 12% or more increases.

Lump sum investment

Return From Lumpsum Investments For Nifty 50 Tri

SIP investment

Return From Fixed SIP Investments For Nifty 50 Tri

Related:
The lie of wealth-creation via SIP in mutual funds

Step-up SIP investment

Return From a 10% Step-Up SIP Investments For Nifty 50 Tri

Related:
What is a step-up SIP and how much more wealth does it create vs. a normal SIP?

To understand what returns should you expect from your equity funds:

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Also read
How can you figure out your expenses in retirement/FIRE?

When can you not get 12% returns?

However, it is essential to understand one important caveat to the statement: “The longer the investment period, the higher the chance of getting a return higher than 12%”.

When you are finally getting ready to spend the money, you are no longer in the long term. Let us say that you have invested for 12 years for a child’s college education goal and now admission is due in the next 3 years.

You are now at the short-term end and there is now a considerable risk of loss:

Metric Any 1y Any 2y Any 3y Any 5y
Average 16.1% 15.0% 15.3% 15.4%
STDev 25.8% 16.6% 12.8% 8.9%
Max 107.4% 67.4% 60.7% 46.5%
Min -56.3% -21.1% -14.7% -1.9%
Median 13.1% 13.6% 13.7% 13.5%
Chance of return > 8% 61% 65% 74% 82%
Chance of return > 12% 53% 55% 58% 64%

You need to take immediate steps to safeguard the amount accumulated for your goal via rebalancing into safer assets. If you are using the Arthgyaan goal-based investing calculator, this aspect will be automatically taken care of as the goal comes closer: See our Case Studies on goal-based investing.

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This post titled Will you always get at least 12% return from mutual funds? first appeared on 19 Jun 2024 at https://arthgyaan.com


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