Investment Blog

Should mutual fund portfolio returns be compared with Fixed Deposits?

One of the biggest mistakes many investors end up making is comparing mutual fund returns with FDs for a period of less than 5 years.

Data like the Nifty50 Index generated a 15% CAGR in the last 10 years seems quite appealing to many people. However, this data hides an important fact that Nifty50 did not generate 15% returns every year. There have been years when the Nifty50 delivered negative returns as well.

To be able to achieve 15% returns, investors need to take negative returns in their stride and be aware that this is part of the process to generate higher returns in the long term.

If your expectation at the time of investment is wrong, you will be sorely disappointed, exit at the wrong time, and never achieve higher returns on your investments.

Expect negative returns (for a few years) from your investments in mutual funds. Adapt your mind to get comfortable with notional loss in the principal value of your investment. If you have prepared your mind for low to negative returns for a few years; Congratulations, you are ready for a 15% CAGR in the long term.

If you are unable to digest the fact that the way to generate higher returns is to go through a period of lower-than-FD returns, you better stick to FDs.

To be able to generate returns more than FDs in the long term, you will have to live with returns less than FDs in the short term.

The path to 15% CAGR is not comfortable and needs a lot of patience & courage. It’s like a story of a hero who had to face many difficulties but sheer conviction, the right attitude, and support from well-wishers (professional & genuine advisors) helped him win in the end.

Are you that hero of your investing journey?

Originally posted on LinkedIn: www.linkedin.com/sumitduseja