Most of the investors are concerned about investing their money and expect returns after a stipulated time period? But have you ever wondered about the factors that impact returns from mutual funds? It is important to know about these factors because then you will be able to take care of your investments in a better way. You will be able to extract more profits from the same amount of investment. You will become an active investor rather than a passive one. Check out these factors that influence the returns and learn more about the mutual fund investments.
Diversification
You must have heard of equity-oriented funds that invest majority of the corpus in stocks. If the market is up, you can expect lucrative returns and if the market is down, all can crash. Thus, to reduce volatility and risks, it is advisable to diversify the funds. An experienced and sound fund manager will be able to act wisely, and diversify the amount in multiple stocks and money making instruments. When a fund comprises of multiple funds, some may perform aggressively while some may be sluggish. Thus, from an overall perspective, the returns will be balanced.
Sector Performance
Talking about individual stocks, there are a lot of factors that affects the returns. The performance of the stocks and the economic conditions influences the rise and fall in the market. If the market looks strong, the investors and businessmen are willing to take risks. This will enhance the market performance. For example, when the oil and gas prices are on the rise, you can expect higher returns. If we talk about foreign stocks, you will gain when the dollar weakens. During this phenomenon, the stocks become more valuable.
When the consumer goods are in demand, consumer stocks will definitely produce impressive returns. The economic growth means high rate of employment. This will increase the consumer spending and vice versa. Further, the rise and fall in the interest rates also influences the stock’s performance.
Total Expenses
The fund management house charges according to the expense ratio to cover up its liabilities and other operational costs. This may include management fees, marketing fees, agent fees, and so on. According to SEBI, the maximum value of expense ratio can be 2.5 % for equity funds and 2.25 % for debt funds. However, the value depends on the AMC. Most of the mutual funds have an expense ratio of 1 to 2%.
Further, if the mutual fund scheme has a large corpus for investment, the expense ratio naturally comes down. This is because the operational costs are optimized unlike in small funds.
Risk-Oriented Performance
The mutual funds invest in equities, debts, and money market instruments. While equities respond according to the fluctuations in the market, debts and fixed income assets are immune against fluctuations. If you are willing to take risks that means you are an aggressive investor. In this case, you can expect high volatility and high returns. But in the long run, you will witness stable performance.
Debt funds are invested in secure instruments such as fixed income assets, commercial papers, treasury bills, cash, and so on. These are generally immunized against fluctuations. Thus, the risks are low and the returns vary between low to moderate.
Fiscal Policies
Government fiscal policies and regulations can impact the market performance. If the fiscal deficits are quite high, this will increase the borrowing costs, in turn, affecting the market in a negative manner. Political stability is necessary to elevate investor’s confidence. Countries that have political stability can expect robust business environment, thereby, boosting mutual funds performance.