Shocker! PPF beats mutual funds! Here is a reality check for MF investors

Mutual funds return over the last five years have given single-digit returns and have been outperformed by the Public Provident Fund (PPF) — a debt-fund investment tool. According to LiveMint, from FY14 to Fy19 till August 2019, the PPF interest rates have been in the range of 7.5 per cent to 9 per cent, which becomes around 8.2 per cent after averaging. However, much to most people's surprise, when it comes to mutual funds return in various categories the return has been lesser than the PPF.

The large-cap mutual fund's average return in the same period is 7.79 per cent, multi-cap mutual funds have given 8.57 returns while the ELSS (Equity-linked Saving Scheme) mutual funds have given an average return of 8.53 per cent in the corresponding period. If we put the LTCG (Long Term Capital Gain) tax being levied on the equity mutual funds in it, the returns would further go down. For an investment above one year, one needs to pay 10 per cent LTCG on his or her equity mutual funds income above Rs 1 lakh. But, mid-cap and small-cap mutual funds have provided some relief to the mutual fund investors as they have performed marginally better than the PPF as they have given an average return of 9.51 per cent and 9.39 per cent respectively.

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Speaking on shocking returns in equity mutual funds in various categories Kartik Jhaveri, Manager — Wealth Management at Transcent Consultants said, "The mutual fund returns you are talking must be annualised and you are talking about the average returns. When one goes for investment in equity mutual funds, there some recommendations because all plans don't work in tandem. Some of them would give a return of 12-14 per cent while some would give 4-5 per cent and there would be some funds that give negative returns. It all depends upon the kind of fund managers hired by the mutual fund house. So, it doesn't mean all equity mutual funds have given same returns."

Elaborating upon his idea behind his defense of mutual funds, Jhaveri said, "In the last one-and-a-half months, the equity market has corrected to the tune of near 10 per cent. When the averaging would be done, this one and half month performance would definitely hit the entire year average. So, I would still say that the statistics you are talking can prove anything and can prove nothing."