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Give your money the equity fund edge
Published On , 31 May 2017 By Times Of India
Investing in the stock market is the job of an expert. So most financial planners and advisors advise theirs clients that if they have the risk appetite and long years ahead of them for their money to grow, they should take the easier route to invest in the market: That is invest through the mutual fund route.
Investors enjoy several advantages when they invest in the stock market through the mutual fund route. For one, investments experts manage their funds on their behalf at a low cost. The maximum cost that a mutual fund manager could charge an investor is about 2.85% of his total investment per annum. In most funds this charge is much lower than the cap level.
Investors also enjoy other benefits like lower tax outgo in most cases, good long term return, freedom to invest as and when one wants to, and also relatively easy liquidity than in comparable products.
One of the more attractive propositions to invest in the stock market through the mutual fund route is the better return that funds have historically generated for their clients.
Over the last 5 years, the sensex has returned a little over 13.5% while a large cap mutual fund schemes has given a return of about 16.4%. For the 10-year period, the returns are 7.9% for the sensex to 10.14% for the large cap fund category. On the face of it, the outperformance looks to be modest, just close to 3 percentage points over five years and 2.25% over 10 years. However, if you calculate in terms of compound interest this is a large outperformance.
Say Rs 10,000 invested in the large cap fund every month for five years (that is a total of Rs 6 lakh) would grow to Rs 9.33 lakh compared to Rs 8.60 lakh if the same amount was invested in the sensex. So you would have about Rs 73,000 more in your portfolio.
The out performance is more pronounced if the duration is more. If you had invested the same amount in the large cap fund for 10 years, at the category average return of 10.14%, your total wealth would have been Rs 20.8 lakh while the same amount would grow to Rs 18.3 lakh if you had invested in the sensex. That’s a gain of Rs 2.5 lakh more.
Please not here we have calculated the outperformance using the fund category average. Some of the best funds within the large cap funds category have given much higher return during the period under consideration. For example, one of the oldest Equity mutual funds in India have given an average annual return of close to 15% over 30 years of its existence. Seen in another way, this fund would have doubled your money in almost every four and half years.Please not here we have calculated the outperformance using the fund category average. Some of the best funds within the large cap funds category have given much higher return during the period under consideration. For example, one of the oldest Equity mutual funds in India have given an average annual return of close to 15% over 30 years of its existence. Seen in another way, this fund would have doubled your money in almost every four and half years.
Similarly, if you go on the net, using the SIP calculator you can check out your outperformance if you had invested in small cap funds, midcap funds and Tax Saving funds vis a vis sensex and nifty.
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