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Will these mutual funds give 12% returns in five years?

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Last Updated: Jun 02, 2020, 11.19 AM IST
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Summary If you have any mutual fund queries, message on ET Mutual Funds on Facebook. We will get it answered by our panel of experts.

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I am investing in the following mutual funds via monthly SIPs:

Canara Robeco Emerging Equities Fund (growth, regular): Rs 3,000

L&T Emerging Business Fund (regular, growth): Rs 1,000

Mirae Asset Hybrid Equity Fund: Rs 2,000

Is my portfolio balanced? Will I get an overall gain of 12 % in five years? Should I change any of the funds?
-Naga Babu B

You are currently investing in a large & mid cap scheme, small cap scheme and aggressive hybrid scheme. All these schemes have varying risk associated with them. They also require different minimum investment horizons.

For example, large & mid cap schemes are recommended to aggressive investors who are ready to take the extra risk and volatility associated with investing in mid cap stocks. They also should have a longer investment horizon of seven to 10 years.

Similarly, small cap schemes are recommended only to extremely aggressive investors. These schemes are very risky and volatile. Only investors who are okay with the extra risk and volatility should invest in them. Also, the investors should be ready to hold their investments for a longer period of seven to 10 years.

On the other, aggressive hybrid schemes are suitable for conservative equity investors who doesn't want too much volatility. These schemes invest in a mix of equity (65-80%) and debt (20-35%), and they are relatively less volatile than pure equity schemes that can invest the entire corpus in stocks. Conservative equity investors may invest in these schemes with an investment horizon of five to seven years.

You should try to choose your mutual funds in line with your goals, horizon, and risk profile. You have stated your goal and horizon, but not your risk profile. However, since you are investing for a shorter duration of five years, you should not choose risky categories like mid cap, small cap, etc. Because of the extra risk and volatility associated with these schemes, they should be held for a longer period.

Mutual funds advisors speak about 12% returns from equity mutual funds over a long period. However, the assumption is based on the long-term historical returns. The real return may depend on the performance of the stock market.

Lastly, do not chase returns. Always choose mutual fund schemes that are in line with your risk profile. Chasing returns would result in choosing highly risky products without realising the extra risk involved in investing in them. You may not have the risk appetite to hold on to your investments or continue with your investments in such products during a rough phase in the market.

(If you have any mutual fund queries, message us on ET Mutual Funds on Facebook. We will get it answered by our panel of experts.)

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