Maths behind high returns: When we talk about the high-performing mutual fund, the core of high returns lies in compounding, which is popular for generating earnings from your money that are then reinvested to generate even more earnings. This is an endless loop that results in huge gains for those who are willing to wait, just like a snowball effect. A mutual fund making 10-12 per cent profits annually may not seem amazing during one year, but will be outstanding after 10-15 years.
Another significant factor is consistency versus volatility. A successful mutual fund not only provides higher returns but also ensures that risks are well-managed. In case the market plunges, the successful fund ensures there are no significant losses on the downside. This is necessary because, mathematically, reversing losses is not an easy feat. For example, a loss of 20 per cent necessitates a 25 per cent gain to even out.
Then comes portfolio allocation and diversification. High-performing mutual funds don’t rely on a single stock or sector. Instead, they spread investments across industries like banking, IT, FMCG, and manufacturing. This reduces risk while still capturing growth opportunities. The maths here is simple: diversified returns are more stable and sustainable.
Expense ratio has its own silent influence on mutual funds. Sometimes, even a small difference of 1 per cent can make a huge difference in your net worth. Winning funds maintain an optimal balance between performance and cost efficiency.
Motilal Oswal NASDAQ 100 ETF
Nippon India Small Cap Fund – Direct Plan
Quant ELSS Tax Saver Fund – Direct Plan
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money related decisions.)
