If I deposit 1 crore on mutual funds, how much interest would I get every month?

It is a very useful question as many people investing in the Indian Stock Market since 2020 feel that equity investing is a fast way to get rich and returns are guaranteed.

This is far from the case.

First, we need to understand – what is a Mutual Fund?

Mutual Fund is a basket of stocks which is picked by the Fund Manager. The basket is made using money contributed by investors.

Second, we need to understand – what are stocks?

Stocks are like small portion of a business which the company lists on the stock market to raise money

Third, how does the mutual fund generate returns?

Returns are generated when the basket of stocks perform and generate returns

Fourth, how does the stock generate returns?

The stock generates returns when the company makes money based on the business cycle

Fifth, does the company always make returns?

Company will make returns based on local and global demand for their product or service. This also goes through cycles.

Considering all this, is returns from the Mutual Fund guaranteed?

If the company does not make money, the company’s stock price does not move, the mutual fund basket does not rise in value and hence no returns are generated

So, is investing in Mutual Funds not good?

As stated earlier, Mutual Fund is a basket and consists of stocks from different companies(from minimum of 10–15 to 100–200). If some do not perform – others might thereby generating returns but this is not a guarantee. There are times (like Global Financial Crisis of 2008, Covid-19 of 2020, etc.) where companies across sectors make loss or face challenges in their business

What is a good horizon for expecting returns from Mutual Funds?

For getting suitable returns, it is advised to stay invested for a minimum of 5years (to ride the business cycle). Also, historically Mutual Funds have been able to give annual returns of 10–16% (pre-tax) on a 5–10 year horizon

Hope these questions give you an idea about Mutual Funds, returns and expectations

If you are expecting 50% returns in 3years – better be ready to invest in risky stocks or instruments which are equivalent to gambling.

Mutual Funds are slow, tax-efficient, professionally managed and require least effort to track.

Hope this helps

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All the best

God Bless!