Can mutual funds provide with 12 per cent returns in 10 years?
The rate of return of 12 per cent is the sweet spot among investors as this rate of return, in general, is assumed to beat the inflation. But is it possible to achieve the same considering that the risk profile of the investor is moderate or balanced?
Let us assume that the risk profile being moderate or balanced you would invest 50 per cent in equity and 50 per cent in debt. Further, if we classify equity as an asset class, then you would invest 20 per cent in large-cap equity mutual funds, 20 per cent in multi-cap equity mutual funds and 10 per cent in mid-cap equity mutual funds. For debt mutual funds, 20 per cent would be invested in ultra short-term debt mutual funds, 20 per cent in short-term debt mutual funds and 10 per cent in corporate bond funds.
On an average in the past 10 years, the rate of returns provided by large-cap equity mutual funds is 15.28 per cent, multi-cap equity mutual funds provided 17.74 per cent, mid-cap equity mutual funds provided 20.26 per cent, ultra short-term debt mutual funds provided 7.91 per cent, short-term debt mutual funds provided 8.09 per cent and corporate bond funds provided 7.61 per cent.
Mutual Funds | Proportions | 10 Years Returns |
Large-cap equity mutual funds | 20% | 15.28% |
Multi-cap equity mutual funds | 20% | 17.74% |
Mid-cap equity mutual funds | 10% | 20.26% |
Ultra short-term debt mutual funds | 20% | 7.91% |
Short-term debt mutual funds | 20% | 8.09% |
Corporate bond funds | 10% | 7.61% |
Considering the above, the asset allocation for a moderate or balanced risk profile, the weighted average returns on the portfolio comes to around 12.60 per cent.
But it is to be noted that past performance doesn’t guarantee future performance. The above model portfolio is generic and may not be suitable for all. So it is wise to have an individual financial plan in place. In the above illustration, taxation and inflation are not taken into consideration.