Mutual funds are one of the most widely chosen investment options for long-term wealth creation. They offer diversification, professional management, and access to different asset classes, making them suitable for a wide range of investors. But one question that almost every investor asks is simple: what kind of returns can I realistically expect?
Understanding the average returns on mutual funds is essential before investing. Returns vary depending on the type of fund, market conditions, and investment duration. Equity funds, debt funds, and hybrid funds all have different risk profiles and return expectations. That is why it is important to align your expectations with the category you are investing in.
In this blog, we will break down how mutual fund returns are calculated, the different types of funds available, and what average returns investors have historically seen across categories. This will help you set realistic expectations and make informed decisions based on your financial goals and risk tolerance.
Let’s explore what you can truly expect from mutual fund investments.
What Are Average Returns on Mutual Funds?
The average rate of return on mutual funds refers to the percentage of profit generated by a mutual fund over a specific period. Historically, mutual funds in India have delivered returns ranging from 9–12% annually, depending on the type of mutual fund and market conditions. For example, equity mutual funds have shown significant growth, especially in booming markets, with some even delivering returns of over 20% in a decade.
Understanding these returns is essential, as they provide insights into how your investment may grow over time.
What are the different types of return on Mutual Funds?
| Type of Return | Definition | Example |
| Absolute Returns | Total growth in percentage terms, irrespective of the investment period. | If you invest ₹1,00,000 and it grows to ₹1,25,000, your absolute return is 25%. |
| Annualized Returns | Yearly growth rate, accounting for compounding over the investment period. | A fund grows from ₹1,00,000 to ₹1,21,000 in 2 years, giving an annualized return of 10%. |
| Total Returns | Overall gain, including interest, dividends, and capital appreciation over time. | A mutual fund provides ₹1,000 as dividends and grows by ₹4,000 in value; total return is ₹5,000. |
| Point-to-Point Returns | Return calculated between two specific dates, often used for performance tracking. | NAV grows from ₹50 to ₹75 in 5 years; point-to-point return is 50%. |
| Compounded Annual Growth Rate (CAGR) | Annual growth rate assuming the investment is compounding. | NAV grows from ₹50 to ₹100 in 3 years; CAGR is 26%. |
| Rolling Returns | Consistent annualized returns over overlapping time frames to measure performance consistency. | A fund gives 12% annual returns every year for a defined period; rolling returns show stability. |
| Trailing Returns | Return over a specific trailing period, such as 1-year, 3-year, or 5-year returns. | NAV grows from ₹60 to ₹100 in 5 years; trailing return is 12.8% annually. |
Top Category-Wise Average Returns on Mutual Funds
Understanding which mutual fund categories deliver the best returns can help investors make informed decisions about average returns on mutual funds. Here’s a breakdown of the top-performing categories in Equity, Debt, and Hybrid mutual funds based on average mutual fund return percentage over the past 3 years and 5 years.
Top 5 Equity Mutual Fund Categories by Average Returns
| Category | 3 year | 5 year |
| Equity: Thematic-PSU | 34.68% | 26.52% |
| Equity: Sectoral -Pharma | 18.48% | 27.23% |
| Equity: Sectoral -Infrastructure | 24.76% | 26.46% |
| Equity: Mid Cap | 19.34% | 25.58% |
| Equity: Sectoral -Technology | 8.28% | 27.35% |
Date: November 20th, 2024
Top 5 Debt Mutual Fund Categories by Average Returns
| Category | 3 year | 5 year |
| Debt: Long Duration | 6.00% | 6.41% |
| Debt: Gilt with 10 years constant duration | 5.38% | 6.01% |
| Debt: Gilt | 5.64% | 6.12% |
| Debt: Dynamic Bond | 5.76% | 6.19% |
| Debt: Target Maturity | 5.68% | – |
Date: November 20th, 2024
Top 5 Hybrid Mutual Fund Categories by Average Returns
| Category | 3 year | 5 year |
| Hybrid: Aggressive Hybrid | 12.26% | 15.67% |
| Hybrid: Multi Asset Allocation | 12.44% | 14.85% |
| Hybrid: Dynamic Asset Allocation | 10.68% | 12.47% |
| Hybrid: Balanced Hybrid | 9.30% | 11.02% |
| Hybrid: Equity Savings | 8.30% | 9.53% |
Date: November 20th, 2024
Why Average Returns on Mutual Funds Matter for Your Investments
When evaluating mutual funds, it’s essential to compare the annualized return mutual fund against benchmarks and peer funds. This ensures that your chosen fund performs consistently and aligns with your financial goals.
Internal Factors Affecting average returns on mutual funds
- Fund management strategy.
- Asset allocation.
- Expense ratios.
External Factors Affecting average returns on mutual funds
- Market performance.
- Economic conditions.
- Interest rate fluctuations.
For a diversified portfolio, investing through mutual funds or SIPs can mitigate risk while enhancing returns.
Conclusion
Investors can enhance their wealth creation journey by staying consistent with mutual funds that have demonstrated steady performance over time. Discipline matters more than timing. Regular investments, especially through SIPs, allow you to benefit from compounding and market cycles without the stress of predicting short-term movements.
Using tools like a SIP calculator can help you set realistic targets and understand how your monthly contributions may grow over time. Tracking your progress through a reliable investment platform also makes it easier to stay aligned with your financial goals and review performance periodically.
It is equally important to understand the average returns across different mutual fund categories. Equity funds, debt funds, and hybrid funds each carry different risk-return profiles. Knowing what to expect helps you build a strategy that matches your time horizon and comfort with volatility.
Wealth creation is not about chasing the highest returns every year. It is about staying invested, reviewing periodically, and adjusting when necessary.
Start early, invest consistently, and let your money work steadily toward your long-term financial goals.
Suggested Read – What to Do When Mutual Fund NAVs Are Falling?
Disclaimer: Investments in securities market are subject to market risks. Read all the related documents carefully before investing. The securities are quoted as an example and not as a recommendation.
