Hello Readers!

Chasing and generating good returns is the priority for almost all investors who invest their money in different investment instruments. In order to get good returns, people generally pick out those mutual fund schemes that have given a historical return of 20% or invest in those small-cap and mid-cap funds that have 30%-40% returns in some years.

In our school we were taught basic value of moral science, where we were explained that chasing temptation, is not good, it has its own harmful consequences, similarly, investors investing in mutual funds, if move forward on the track of chasing returns, they must face consequences that are potentially life-altering and not in a good way.

Investing in mutual funds to gain good returns for your goals is considered the best option by many fund advisors but investing in mutual funds for goals and only chasing returns can create a problem that would not be considered good for your investment.

Here we are focusing on, why chasing returns is not a great idea when investing for goals in mutual funds, read and get to know about the facts.

Returns Are Important, But…

Investors should always keep in mind that they are saving and investing their money in mutual funds, because they cannot create the required corpus for their goal, only by saving their money.

Let us understand it through an example. Suppose a person named Mohan is 35-years old and is a doctor by profession. He is planning to save for his retirement, he consulted a financial advisor, who says that as per his current lifestyle and future needs, Mohan would need around Rs 4 crore to retire.

Well, we and Mohan both know, that he is just 35 only and, in the future, he would be earning more than triple of his current income. Mohan is a practical man and he knows that through his hard work and dedication, he will reach a position where his salary would be extremely high. But here the question is, would Mohan be able to save up for his retirement from his take-home salary, along with carrying other expenses of his and his family.

Mohan after thinking a lot concludes that he might be able to save maybe half the retirement amount over two decades. But what about the remaining two crores?

And here he fills to do an investment in mutual funds for his retirement, that can literally double his savings, with the time he would require the money. His advisor suggests that investing in equity mutual funds can be the most reasonable way to reach his retirement amount.

Now from here the story of chasing returns start. Keep one thing in your mind, returns from long-term investments need to stay ahead of inflation, only in that situation, they will work financially to accomplish your goals.

Your Goals and The Tenure of Investment Are More Important

Mutual Fund Investment gives inflation-beating returns, and this is the reason why it is considered as one of the best options to invest your money and create a good corpus for your goals like retirement. Also, if any investment instrument does not guarantee inflation-beating returns over a long period of investment, investing in that instrument for the long-term doesn’t make any sense.

When you invest for your long-term goals like retirement, in the late years of your life say at 40 or 45, then you can assume that most of the goal amount will come from savings and not from your returns.

This is simply because the higher potential returns involve high short-term volatility along with potential risk associated with the instrument, from where you are hoping for the returns.

So basically, when planning to invest for long-term big goals, try to start it in the early years of your career say 30-35, you will get much time to create a good corpus.

What Happens When You Chase Returns?

When you invest in mutual funds, mainly for the purpose to chase and generate high returns, in that situation you generally invest in the highest return giving mutual funds and within that the highest return generating funds. Well, there are some Small-cap Equity Mutual Funds that have given high returns, say more than 20%, in some years but the most shocking thing was when it gave negative returns the very next year.

Point is the greater your return expectation would be, greater will be your risk and greater the chance that you may lose some or all your investment.

So basically, when you chase only returns, you often compromise your goals, by taking more risk than you might need to, which may divert your investment from your goals.

Thus, be smart and chase your goals, your investment will chase the returns for you.

You can contact us at Shri Ashutosh Securities Pvt Ltd., for any assistance, we are here to help you in any way possible.

Happy Investing!

(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).