Investing in mutual funds for jaw-dropping returns like 25% requires a balanced recipe of patience, risk tolerance, and timing. But still that may not be a realistic proposition. Let’s get real here. A 25% annual return is like hitting a cricketing six, it’s possible but don’t expect it every ball.
The historical data of mutual funds, even the top-performing ones, rarely showcase such a high, consistent ROI. The reason is that most investors dont have the patience, and most mutual funds may be over diversified to hold sufficient stocks to generate that kind of return. Warren Buffett said, “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.” Similarly, in mutual funds, the tenet ‘higher the risk, higher the returns’ usually holds but isn’t a guarantee.
Why so? Because mutual funds are not a sprint; they are a marathon. Market volatility, economic cycles, and fund manager’s capabilities influence these returns. Some years may yield you 25%, but there could also be years when you’re in the red.
Now, the Roots and Wings investment philosophy comes into play. If you aim for extraordinary returns, look for funds that holds strong roots ‘roots’, meaning strong balancesheets and ‘wings’ that signify earnings growth. Your SEBI Registered Investment Advisor can help you align your mutual fund choices with this philosophy.
Also, the LSG framework—liquidity, safety, growth—helps in asset allocation across funds/stocks according to your risk profile. High returns come with higher risks. But balancing these risks with your liquidity and safety needs is key to long-term wealth management success.
To sum up, while shooting for a 25% ROI is ambitious and commendable, it’s essential to understand the volatility and risk associated with it. Speak to your SEBI Registered Investment Advisor for personalized guidance.
