How to analyse Mutual Fund Returns

It is pretty relative to judge whether the mutual funds return is good or not. This is based on what the financial goals of the investor are as well as based on what the market is doing and how the economy is.

Most of the mutual fund schemes are designed for the long term investors and these deliver consistent mutual funds return sand the volatility too is lesser as compared to the market. The mutual funds have been seen to underperform the market in the times of a bull run but they over perform the market during the bear phases.

Can You Put A Number On The Average Annual Rate Of Return On Mutual Fund Investments?

What makes a good average rate of mutual funds return is totally dependent on what the individual investors’ expectations are. Most of them will be happy with the return which is the average of the market performance and there are others who would like to make mutual funds return rate that exceed the average market return. If the investor has invested thinking that he wants to beat the market by a good percentage, then the average rate of mutual funds return would not make him feel good about it.

Factors affecting the Average Return Rate in Mutual Fund Investments

How the market performs and what the economic conditions of the market are some of the key factors based on which you need to check the average rate of mutual funds return. So in case the market is in a bear phase and the stocks have fallen down to more than 15% and if even in this scenario the mutual fund could give you a return of 5%mutual funds interest then this is considered to be a good return. But if the market itself has make some 15% gains and is very bullish but the mutual fund average rate of return is just 3% then this means that the fund performance is not good.

Annual and Annualized Mutual Funds Returns

To understand the mutual funds return investments it is first important that the investors understand what annual and annualized returns are. Annual return is the change in percentage in an investment over a time frame of one year. The annualized return is the return percentage on an investment average mutual fund return which is measured in a shorter or a longer time frame than one year but these have been calculated to make it annualized as a yearly return rate.

What Is It Annual Return?

The annual return is where you check the annual return of the mutual fund over a year. This is a value that is used commonly because it is a simple metric. The annual return will let the investor know about how the price change occurred over the year but the calculation of the annual return will not take any stock volatility into consideration.

Annualized Return- Understand the Difference

The annualized return lets you calculate the performance over time. You need to first know what the total return is regardless of whether the time period is greater than or less than one year. This is then calculated to bring it to a yearly return rate.

The Average Mutual Fund Return Rate

The comparison websites for mutual fund investment will display the yearly, 3 yearly, 5 yearly etc, returns offered by the mutual fund. If you check just the yearly performance then there could be chances that the market was very bullish this year and thus since all the mutual funds performed well the particular fund that you are looking at performed well too.

It is however better to check the average rate of return of the mutual fund over a few years’ time. This is because the fund would have sailed through a downtrend and an uptrend and this will let you know how well the fund has performed. It will also throw light on how the fund is being managed.

If you want to make sure that the average return rate of mutual fund is consistent over the years, check average return on mutual funds for the last 10 years. This means that the fund is managed well and that even if the market is bullish the fund managers are taking care that the fund value does not go very much in the negative.

Again it is all about the individual financial goals that actually matters. Also if your investment time period is not big average return on mutual funds for the last 10 years in India then you need to stick to checking the performance of funds for your investment time horizon. When one knows what the average rate of return of the mutual fund is then it will help to determine whether the investment is performing in a way that helps to meet the expectations of the investor.

The12% Average Return- Is It True?

The stock market averaged 12% is something that you would have heard about. How true is it? Does that really mean that mutual fund investments can give you an average 12% rate of return? The truth however is that 12% is not a very proven number and if that is not the rate of return that you can expect from the market then what is it?

Before you understand what the average rate of return that you can expect from the market you need to know some important basics about investments. Check average return on mutual funds for the last 20 years.

Why Does the Investment Rise in Its Value- Average Mutual Fund Return Over 20 Years?

How and why do investments make or lose money? The investment average mutual fund return calculator that you have made has gone up because there could be that and income was paid on your investment which could be in the form of a dividend or in the form of a bond interest. The gain was realized and the investments were sold off when a profit was seen. Or there could be some unrealized gains in your investment where the investments are still being held on to even when they have gained in value. In most cases the investment goes up because the instrument has risen in value. This means that there is demand for these securities. Incase the value of your investment went down then there was lack of demand for the securities that you have invested into.

So what makes your investment worth? Only if someone at the other end is buying it.

The Average Mutual Fund Return Should Be Able To Keep Pace with the Market

The long term investment that you make into mutual fund should be able to offer returns as per the performance of the index. So if the market has averaged to say 5% then your investment should also have offered a 5% return. If the market has gone up by say 20% then the long term investments mutual funds interest should also be able to make returns like that. There are funds that let you invest into the index directly and these are also cheaper because the management fees of these funds are not very high. So when you are investing make sure that the investment account is being able to match the market returns. If you are looking to pay higher and buy a mutual fund that is charging to higher management fees then make sure that the fund is being able to beat the market returns.

What Reasonable Average Rate Of Return Mutual Funds Interest Can You Expect From Your Mutual Fund Investment?

If you have been ever approached by someone trying to sell you a mutual fund scheme he would let you know about the annualized returns offered by the scheme. There would be numbers shared with you about say the returns being 20% over a 5 or a 10 year period. But understand that when the agent tells you figure it is the past mutual funds interest returns that he is telling you about.

What returns the mutual fund must have given historically mutual funds interest is no way a comparison to what it would do in the future. The past returns are in no way indicative of what the mutual fund will do in the future.

Conclusion- Mutual Funds Return- Average Mutual Fund Return India

Mutual fund average returns are in no way a representation of what you will earn in the future. Mutual funds return should not be the sole criteria of deciding to buy a mutual fund scheme. You need to know your own financial goals mutual funds interest. You need to be clear on the type of fund that you want to invest into based on your risk taking appetite and also the time horizon that you plan to stay invested.

Return expectations mutual funds interest is different for different investors and thus there can never be an exact numerical value attached to it.

 

Guest 
on 24 September 2018
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