Most MFs fail to match even returns of banks - The Economic Times

Most MFs fail to match even returns of banks - The Economic Times

MYTH About MF Returns, Myth about Mutual Fund returns read on...

The times Group is known for adding spice to every day mundane news. So before jumping into any conclusions on the the above report my advice to the inquisitive investor is to read between the lines. The article mentions that very few schemes managed to outperform a fixed deposit investment, it also mentions out of 30 good funds 20 gave less than 2% returns in the last two years. the point of comparison is Jan 15th 2008 Sensex@20,000 and Sept 21 2010 Sensex 20,002. They also dared to mention in 'Times of India' Paper that Mutual fund investments may not be good for the long term.  

For the Inquisitive Investor

Lets assume the banks in the last two years gave consecutively gave 8% then the compounded absolute return in the last 30 months will be approx 20%. I have enclosed on a point to point basis the absolute returns of 250 Open ended equity schemes, there are 30 schemes that have given returns in excess of 20%.

There are 90 Schemes that have given positive returns, out of that 57 have given returns in excess of 8%.

Bank FD 1 year rates from June 2008 to Dec 2008 were hovering around 8.5% and 500 day rates touched 10%. anybody who picked a 5 year deposit at that rate is a winner no doubt but the point is banks received very        few funds during that time. now 1 year FD rates are at barely 7%. were as average mutual fund returns last 1 year is in excess of 30%.

the last point is Mutual Fund Investments are long term, and by long term i refer to 5 years and above. why because you need to give them time to buy stocks hold the stocks till the value is fully realized. what if they had bought Infosys at its offer price of 95 in 1993 and sold it in 2 years because the stock had not done well. the stock went all the way to 16000. look at the value unlocked. never be impatient with stock market.

I am not saying bank investments are bad, but look at them as different asset class. Don't compare bank returns to Equity returns its like Apple Vs Mango. Bank investments are safer and hence lesser returns, equity investments are riskier hence higher returns.

Happy Investing!!!