The returns from mutual fund schemes, particularly equity mutual funds, have been phenomenal. With the exception of International Equity schemes, the average returns from all other equity mutual fund category have been above 15% CAGR over the last five years.
From registering record inflows to providing stellar returns, the mutual fund industry has been on a roll. Since 2020, the retail inflow into mutual fund has been on a consistent rise month after month. The trend continued even during August 2024.
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As per AMFI data, during August 2024, net inflow into equity schemes reached Rs 38,239 crore, up 3.3 percent from Rs 37,113 crore in July 2024. The SIPs inflow hit a record of Rs 2350 crore, marking the 14th consecutive month of lifetime highs.
“The returns from mutual fund schemes, particularly equity mutual funds, have been equally phenomenal. With the exception of International Equity schemes, the average returns from all other equity mutual fund category have been above 15% CAGR over the last five years. This is the kind of return that individuals require in order to double their investments in 5 years. Any investment can double in 5 years if it grows at a CAGR of 14.87% or more,” informs Certified Financial Planner, Lt. Col. (Retd.) Rochak Bakshi, Founder and CEO of True North Financial Services.
In this context, given below are the various categories of mutual funds which may have a decent chance of doubling individual’s investments the next 5 years:
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Considering high valuations, especially in some mid-cap and small-cap pockets, capital preservation will be as important as capital appreciation.
1. Multi Cap Mutual Funds: With a category average return of over 25% CAGR over the last 5 years, this category seems to be the most promising.
2. Flexi Cap Funds: Flexi cap funds can invest in stocks across market caps and in any proportion. With this mandate, the fund manager can avoid bubbles and even take active cash call. The category has provided CAGR of about 21% in the last five years.
3. Multi Asset Allocation Funds: These are hybrid funds that must invest a minimum of 10% in at least 3 different asset classes. They have lesser risk than most equity and hybrid funds. These funds have delivered an average of 19.2% CAGR over the last 5 years.
4. Contra Funds: These funds invest against existing market trends and have provided an average of 27% annual returns over the last five years.
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5. MNC Funds: MNC companies have good corporate governance and are not overheated as a category. These funds have given 19% annual returns over the last five years.
6. Nifty Index Funds: Currently, the large-cap space is relatively fairly valued. A conservative investor has a healthy chance of doubling their money in five years by investing in a Nifty Index Fund. These funds have delivered an annual return of 18% over the last five years.
7. Sectoral Funds: Banks and Financial Services – A major portion of these funds, i.e., private banks, have underperformed in the recent past. The constituent stocks of these funds have not participated in the euphoria; however, the earnings have increased significantly. This sector can be expected to outperform in the next three to five years.
8. Technology Mutual Funds: These funds have underperformed in the recent past. However, the lowering of interest rates worldwide is expected to benefit this sector.
9. Large Cap Funds: These are reasonably valued at present considering that the market is pretty heated up. “Considering the steady inflows will come mainly into large caps, I expect well-managed funds in this category to double in the next 5 years. They have given average returns of more than 19% over the last five years and are a very good category for the moderately aggressive investor,” Lt. Col. (Retd.) Bakshi says.
10. ELSS Funds: This may look like a surprising category in this list. However it has some distinct advantages. “Since there is a lock in of 3 years, the investor tends to be patient and at the same time the fund manager is confident about the longevity of the money. The category average for the last 5 years is 22% with the better performing funds giving in excess of 28% returns,” Lt. Col. (Retd.) Bakshi says.
In the case of thematic funds, it will be important to exit at the correct time, which can be done with the help of a financial advisor.
