No panic: Mutual funds promise good returns in long-term

 Though mutual funds have seen a dip in the net asset value (NAVs) in the last one week due to turmoil in the market, experts said investors should not panic and take a short-term view. With Indian economy expected to grow at 9%, MFs are capable of giving handsome return in medium to long term (three to five years), they added.

Almost all categories of funds have given good return in three to five years period (see chart). On an average, the diversified funds have given a compounded annual return of 48% till Thursday.

In last one week, till Thursday, diversified MFs average NAV has dipped by 15.18%. As sensex gained more than 1,100 points on Friday, it has offset a substantial portion of loss, CEO of a MF said.

During last five years, there were couple of occasions when the sensex fell by over 1000 points. Critics said party is over and investors should exit. But, those who remained invested reaped the benefit.

What happened on Monday and Tuesday , the CEO said, should be taken as an aberration and will be corrected in due course. This kind of situation should be taken as an opportunity to invest. Any investment at lower level will improve the return, he argued.

In three to five years, he said, fund would be able to give more than 20% per annum return. He cautioned that the high return of 49% in the last five years may not be replicated in the next five years as most of the hidden value of the stocks have already been realized. Therefore, he said that if India grows at 9%, there will be companies which will grow at around 25%. So, investors can still manage to earn an annualized return of around 25% to 30% in the medium to long term.