POSTED BY April 10, 2012 1:58 pm COMMENTS (14)

ONHi,

Please help me in understanding the Mutual Funds return in long term (10 years).

If I invest 1,00,000 every year in PPF, and assume the rate is 8.8%, so at the end of the 10th year the amount will be 16,37,294 (cumulative interest).

Suppose the Fund “HDFC Top 200” has given below returns over the past 10 years.

Fund Name 1-YReturn(%) 3-Y % 5-Y Return(%) 7-Y % 10-Y Return(%)

————————————————————————————————————-

HDFC Top 200 -7.84 25.55 13.58 20.98 27.89

So, as per above returns if I have invested the same 1,00,000 every year, what will the amount after 3 yrs (25.55% return) and after 10 yrs (27.89% return) ?

Thanks!!

I read somewhere, suppose

if age is 30 years, then your equity exposure should be (100-30) = 70% and the remaining 30% should be invested in debt instruments that are relatively risk-free.

Dear Jipal, You are referring to a thumb rule –

100- your age should be your Eq. %age of your portfolio. is it right way to decide how much to invest in Eq? Well Yes for some one & no for another one. Why?

The needs are different. The risk tolerance levels are different. The situations are different. The goals are different………………..

Now from your own theories, out of those 1.5L Rs. you should invest around 1L Rs. in Eq. MFs where as you are investing only 60000 Rs. Why? Please explain.

Thanks

Ashal

Dear Ashal,

Yes, I am breaching my ideal equity:debt ratio mentioned by me. As this is my first MF investment, want to start with 60k then will icrease investment in MF gradually to 100k.

Dear Jipal, It’s ok if you are starting with 60K as of now. Regarding your fund selection –

HDFC Eq. & Quantum Long Term Eq. both are multi cap funds. Please opt any one of the 2. & accordingly increase the SIP amount in your remaining funds.

Thanks

Ashal

if you read recent comments for diversified mf selection in this forum, you may have note the importance of selection of asset management company , and limitations of the mf for better performance due to its over sized assets under management. considering that you may select:

franklin bluechip equity ,quantum long term equity and idfc premier equity and dspbr equity

Hi Ashal/Justgrowmymoney,

Thanks for the replies.

I am thinking of doing my asset allocation for 1,50,000 per year by following way:

Equity: 40% (SIP Mutual Funds)

Debt: 45% (PPF)

Gold: 15% (Physical Gold)

As my age is 32, the equity:debt ration should be 35:65.

I have selected below Mutual Funds to start SIP investment.

1. Canara Robeco Equity Tax Saver

2. Quantum Long Term Equity

3. HDFC Equity

4. HDFC Top 200

Above mentioned Canara Robeco (307.5 crore) and Qunatum (105.7 crore) has very less Net Assets compare to HDFC Top 200 (11381.1 crore) HDFC Equity (9916.4 crore), dont know does it make any difference ?

Also I have read, Canara Robeco Equity Tax Saver has 3 year lock period so regarding that Fund Manager can take risk as has 3 year horizon.

Please suggest 2 MFs to start with.

Thanks for your effort and time!

How have you come to the equity:debt ratio. Is that according to some formula or what?

ELSS (any) has a 3 year lock period. Both QLTE and HDFC Equity are good funds.

Dear Jipal, is it 35 or 65% in Eq? Please clarify.

Thanks

Ashal

Hello justgrowmymoney,

Thanks for the prompt answer.

I am a beginner investment, never done in MF, want to start immediately thru SIP.

I have still some doubts !

1. Does mutual funds generally gives this much CUMULATIVE return compare to FD (around 9%) and PPF (8.8%) ?

2. As per your formulla, If I invest thru SIP 1,00,000 (8133 p.m) every year for 10 years and expected return at 10% [ =FV(10%,10,-100000,0,1) ] will be 17,53,116. Is my calculation correct ?

3. I want to invest 8000 per month in Mutual funds, which 2-3 funds are you suggesting me for long term ?

Thanks!!

Jipal –

1) Some Mutual funds have provided 20+% returns over a decade. Past performance is no guarantee for the future but as a thumb rule we generally take 12% as the CAGR (Compounded Annual Growth Rate).

2) If you do monthly SIP you need to input monthly rate and monthly contribution etc. = =FV(0.833%,120,-8333.33,0,1) = $1,720,866.20

3) Fund selection is dependent one one’s risk profile. I would not recommend one. But there are enough posts in the forum to get the funds.

My recommendation: Read about Asset Allocation https://wp.me/p1Y418-24 and ensure you follow it. This is a great recipe for wealth generation.

Dear Jipal, the performance of MFs ‘ll not be a liner one. It ‘ll be full of UPs & Downs. 1Y you may get +40%, next year -15% then +5% …………. I’m merely giving an example not predicting the future. Yes For 10+Y period, there ‘ll be a general uptrend in the return. On a very conservative side, you may consider around 10% CAGR (similar to 8% CAGR for PPF). Anything more than this ‘ll be your bonus. Actually it helps if you assume lower returns & get higher returns then for the reverse case, assuming higher & getting lower in actual.

As you intend to do SIP, the actual return ‘ll be a good one for you as you ‘ll be investing across the market cycles continuously. Please do not stop in between.

Thanks

Ashal

@justgrowmymoney

Can you share the formulas in an excel format, which I believe, will be helpful for may new investors like me?

Dear Kapil, the formulas are already there in excel sheet. Please click the fx (function) key in your sheet & then click financial formulas & you ‘ll get a lot of formulas. To know SIP value you w’d have to use FV formula.

Thanks

Ashal

Compound it for each year: If 1Lac had been invested on Day 1 returns will be

3 year return = 1 Lac * ((1.2555^3)) = 197902

10 year return = 1 Lac * ((1.2789^10)) = 1170485

The SIP returns will be different (money invested end of Year 1 will have different rate of return, and this will change for each year thus).

Assuming the SIP returns are also same (!!) then the current corpus would be =FV(27.89%,10,-100000,0,1) = INR 49,08,724 (Yes, 49 lacs). But the SIP returns would most likely be in the 15% range even where the corpus would be 23.34 lacs