What Are the Average Returns on Mutual Funds?

When choosing a mutual funds scheme for investment, you want to make sure you're parking your money in the right place. After all, as Abigail Johnson puts it, "Returns matter a lot. It's our capital." But how do you know which MF scheme will bring back good returns? Well, you consider the average returns on mutual funds.

Why check average returns on funds?

The average returns on a funds scheme is a simple mathematical average of a series of returns gained over time.

Because short-term performances vary based on market fluctuations and economic conditions, it's better to consider long-term performances by reviewing the mutual funds' average returns. India alone has over 2,500 registered fund schemes, so when it comes to funds selection, consistency of performance matters a lot.

While historical or average returns cannot forecast actual future returns, they certainly give you a snapshot of how the MF performed across different market cycles.

However, at the same time, it's equally important to define a benchmark to assess the fund performance accurately. When you go looking for a funds scheme in the market, select a fund that consistently outperforms its benchmark.

Consider category performance

Comparing returns of two different types of funds is like comparing apples to oranges. Since there is a broad spectrum of MFs, you must decide on a benchmark to assess the performance of a fund. And one of the best ways to gauge the average rate of return on mutual funds is through category performance.

This is because it factors in the expense ratio, which is a percentage of the various charges levied by your fund house for managing the fund. It essentially gives you the value-for-money aspect of the fund. So, if the average return on a fund is 10% and the expense ratio is 1%, you earn a return of 9% from the investment. 

Let's break down the average returns based on three broad categories of MFs.

Additional Read: The SMART approach to your first financial plan

1. Debt funds

These funds invest in money market instruments like corporate bonds, debentures, government bonds, etc., with a fixed maturity date and interest rate. Thus, they typically offer steady growth and income. If you consider historical returns, debt MFs have delivered an average return of 8%-9%.

Here are some top-performing debt funds in India currently.

2. Equity funds

These types of funds usually comprise a portfolio of equities and equity-related products, managed either passively or actively. They belong to the 'high risk, high return' category. Over the historical period, the average rate of return on equity funds totals to 10-12%, sometimes even higher.   

Here are some top-performing equity funds in India currently.

3. Hybrid funds

Hybrid funds are a mix of debt and equity-related products, giving you the best of both worlds. They usually bring you good returns while also cushioning your investment against market risks.

Additional Read: What are you chasing? The importance of setting realistic financial goals

The bottom line

Looking for top-performing categories of funds in India? Download Tata Capital's Moneyfy app to compare and contrast different fund schemes before you invest. You can easily check the average mutual fund interest rate and compare past performance to make informed choices.

Set financial goals, map fund schemes by objectives, and start investing the smart way.