Mutual funds are a popular investment option for growing wealth over time. One of the most critical factors for investors is understanding the average returns on mutual funds. This blog will explore the key aspects of mutual fund returns, types of funds, and expected average returns on Mutual funds to help you make informed decisions.
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 optimize their earnings by consistently investing in mutual funds with proven track records. Utilizing tools like SIP calculator and choosing the best SIP platform ensures better financial planning and tracking of your portfolio growth.
By understanding the average return on mutual funds sip categories, you can align your investment strategy with your long-term financial goals. Start today and make the most of the wealth creation potential of mutual funds!
Suggested Read – What to Do When Mutual Fund NAVs Are Falling?
