Create wealth for yourself! This is what you must do to get best possible returns from mutual funds

Mutual funds have emerged as a good alternate to conventional investment schemes like public provident (PFF) and fixed deposits (FD) due to their potential to give better returns. Theïr open-ended nature also makes them the preferred option over other schemes. This allows investors to take out their money whenever needed. Even ELSS, which is a tax saving scheme, comes with a lock-in period of just three years - shortest among all tax saving investment options. Mutual funds are known to give over 15 per cent returns historically, some even breaching the 20 per cent market in a longer period. 

But, a few things have to be kept in mind if you want the best possible returns from your mutual fund schemes. Archit Gupta, Founder & CEO ClearTax explains that the first rule of mutual fund investing is to stay patient and focused. Gupta said that the power of compounding allows mutual funds to give more returns than other schemes.

"Mutual funds are known for their wealth creation aspect. This feature is a function of the power of compounding. Your capital gets invested in the said scheme which earns interest in one period. The said corpus (capital+interest) is reinvested in the following period. This exercise repeated over a period of more than 5 years will lead to wealth creation," he told Zee Business Online.

He added that the long term investors even enjoy the benefit of Rupee Cost Averaging. "The continued SIPs fetch more units during the market slump and lower units during a market rally. Over the long run, the overall cost of investment averages out. It has a positive impact on boosting returns," Gupta added. 

So, it is very important for any investor to stay in a scheme for a long period to get the best possible return.

Things to keep in mind

The process starts with the selection of the scheme. It becomes difficult for investor to stay in a scheme if it is not giving the desired returns. Pravin Jadhav, Whole-time Director of Paytm Money explains that when you invest, it is very crucial to invest in the right mutual fund schemes. "The schemes must give you the right balance of equity & debt exposure, depending upon your risk profile," he added. 

The investors can go to various online platforms and compare the funds listed on them. They can also track their past performances and consult with a Sebi registered investment advisor before putting up their money. Jadhav said that investors should put money in three to five schemes that are meant to diversify your portfolio and suit your unique risk profile.