25/01/2019
Myths of Holding mutual funds for long terms would fetch power compounding-
Myths which has been over hipped by mutual fund companies over a long period giving misrepresentation about the product and its returns to the public is very annoying, The software used to calculate CAGR matric used to measure is very wrongfully published and is misguiding the people.
The units if mutual funds keeps on varying everyday, and when we see if there is any appraising figure in market then unit price increases. When we see compounding interest accumulation from any investment we see addition of interest to the interest accumulated till then. The year-no-year growth is same for all the year and you don't see any decrease in its value as it is only increasing year by year.
The rates are pre-determined or sometimes not but still you see any interest credited is fixed in compounding with other interest credited over the accrued capital and interest. Any of the these character doesn't match with units of mutual funds.
The Average large cap equity fund rose 3.7% in 2016,shot up to 31% in 2017 but the performance was muted at 1.1% in 2018. it is pathetic when compared to Midcaps and Small Caps which has -29% and -37% respectively.
This means Stocks and mutual funds can give negative returns whatsoever your investments in any risky instruments.
The term compounding is used only in the context of compound interest since mutual funds don't offer interest the concept of compounding doesn't apply.
Hence CAGR( Compounding Annual Growth Rate ) of mutual funds which has been misrepresented hides volatility.
Public should always aware and differentiate between FD, PPF, LIC Endowment plans, and RD with those of Risky Mutual funds
Shankar Reddy