Equity Mutual Fund returns are highly volatile. However, over the long term, typically five years or more, they are also highly rewarding. Returns on Equity Mutual Funds depend on the investments they make. Large Cap Funds tend to have stable returns. Mid Cap Funds offer higher but more volatile returns.
In this post I am considering just these two fund types and comparing them to Bank FDs
Here are the ACTUAL annual returns on various categories of Equity Mutual Funds from four top fund houses: DSP, HDFC, ICICI and UTI over the last 3, 5 and 10 years as on Jun 21, 2016:
Equity Large Cap funds: 15.41% in 3 years, 10.17% in 5 years and 11.76% in 10 years.
Equity Mid Cap funds: 31.65% in 3 years, 17.44% in 5 years and 13.44% in 10 years.
Comparable returns on Liquid funds have been
Debt Liquid Funds: 8.67% in 3 years, 8.85% in 5 years and 7.80% in 10 years.
Now, Bank FDs provide about 1% less than Liquid Funds at about 6 months tenure. This difference adds up. At 6.8% return (10 year liquid fund return minus 1%) a Bank FD would grow Rs. 1 lakh to Rs. 3.7 lakhs in 20 years. If we include the impact of 30% tax as applicable on Bank FDs for top income tax bracket, the growth in Bank FD would be Rs. 1 lakh growing to Rs 2.5 lakhs in 20 years.
The average large cap fund would grow Rs. 1 lakh to Rs. 9.2 lakhs in 20 years. The average mid cap fund would grow it to Rs. 12.5 lakhs. There is more. The BEST large cap fund would grow Rs. 1 Lakh to about 21.5 lakhs over 20 years (if we assume that the 10 year return would be valid for a 20 year period also). The best mid cap fund would grow Rs. 1 Lakh to Rs. 56 lakhs. And all Equity fund returns are tax free after a year of holding. So no tax is payable at all.
The net net is this: it is extremely loss making to invest money for the long term in Bank FDs. ACTUAL history shows that in the last 20 years investors lost Rs. 55 lakhs in trying to protect Rs. 1 lakh.
In this post I am considering just these two fund types and comparing them to Bank FDs
Here are the ACTUAL annual returns on various categories of Equity Mutual Funds from four top fund houses: DSP, HDFC, ICICI and UTI over the last 3, 5 and 10 years as on Jun 21, 2016:Equity Large Cap funds: 15.41% in 3 years, 10.17% in 5 years and 11.76% in 10 years.
Equity Mid Cap funds: 31.65% in 3 years, 17.44% in 5 years and 13.44% in 10 years.
Comparable returns on Liquid funds have been
Debt Liquid Funds: 8.67% in 3 years, 8.85% in 5 years and 7.80% in 10 years.
Now, Bank FDs provide about 1% less than Liquid Funds at about 6 months tenure. This difference adds up. At 6.8% return (10 year liquid fund return minus 1%) a Bank FD would grow Rs. 1 lakh to Rs. 3.7 lakhs in 20 years. If we include the impact of 30% tax as applicable on Bank FDs for top income tax bracket, the growth in Bank FD would be Rs. 1 lakh growing to Rs 2.5 lakhs in 20 years.
The average large cap fund would grow Rs. 1 lakh to Rs. 9.2 lakhs in 20 years. The average mid cap fund would grow it to Rs. 12.5 lakhs. There is more. The BEST large cap fund would grow Rs. 1 Lakh to about 21.5 lakhs over 20 years (if we assume that the 10 year return would be valid for a 20 year period also). The best mid cap fund would grow Rs. 1 Lakh to Rs. 56 lakhs. And all Equity fund returns are tax free after a year of holding. So no tax is payable at all.
The net net is this: it is extremely loss making to invest money for the long term in Bank FDs. ACTUAL history shows that in the last 20 years investors lost Rs. 55 lakhs in trying to protect Rs. 1 lakh.
No comments:
Post a Comment