I am 34 and have about Rs 10 lakh in savings right now. I want to double this money in five years. Can equity mutual funds double my money?
-Vasu
Even though you need to double your money in a defined time period, equity funds cannot guarantee any returns for any time period. Past performance is only an indicator, it cannot guarantee future returns of a fund.
Fixed income returns, though high, are not high enough to double any amount in the said period. You have to assume some risk. Presently, a four-five year FD can guarantee annual returns anywhere between 8-9.75 per cent, depending on your bank. So your investment can double in a FD in 8 years, if it continues to grow at 9.75 per cent. However this would also carry a higher tax incidence as the gains would be added to your taxable income and taxed according to the income slab.
If you can take some risk, you can invest 70 per cent of your money in fixed income and 30 per cent in an equity diversified fund.
This article was originally published on December 12, 2013.
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