How to maximise returns from your mutual fund investments

By Puneet Oberoi

Many individuals are investing in mutual funds these days because of the bull run in the market. Are they simply chasing returns? That is the question I ask myself when I hear investors asking for a review of their mutual fund investments.
I always think of how many individuals made money in Public Provident Fund (PPF) fixed deposits; how they created a large corpus just by investing consistently over a long period. They were not churning the money. In fact, that is why they made money -- just by being consistent.


Then why do people try to churn their money in mutual funds? What is their idea of mutual funds? Do they really understand the concept of mutual funds?

Many investors are making wrong comparisons, apple to oranges, these days. They are comparing a balanced scheme with a midcap scheme. It doesn’t do justice to their investments. They don’t even remember why they started investing in the balanced scheme in the first place. They don’t realize that when they started, they had some objectives and the advisor has recommended the scheme after taking into account their risk profile to achieve the objectives.

But the big question is: how much difference will this chase make in the long run.

Let us go back to the example of PPF. How did people make money in PPF? They compounded the money at 12 per cent from 1986 to 2000. Same is the case with fixed deposits. That is how people made huge corpuses. If investors follow this strategy and focus on investing regularly in mutual funds, they can create huge corpuses.

I would share a story about an investor. This investor started with a Systematic Investment Plan (SIP) of Rs 20,000 for his children in 2006 and totally forgot about it. His portfolio has seen the best returns in 2007 and then the worst in 2008–09. But he continued to invest unknowingly. One of his SIP of Rs 10,000 stopped in 2010 and the other one is continuing. To cut the story short, he invested Rs 19 lakh till today and the current value of his investment is Rs 53 lakh. His money multiplied because he compounded it at 14.5 per cent annually. There are several such examples.

Next time, ask yourself what are you chasing? Try to make 12-14 per cent returns with peace of mind or to make extra 0.5 to 1.0 per cent by trying to time the market and churning the money from one scheme to the other?

(The writer is a Certified Financial Planner and the Founder of Excellent Investment Advisorz, Delhi.)