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How much can I expect to earn from an equity fund?

The returns that you may get depends on your investment considerations, says Dhirendra Kumar

I have two questions. First, although equity funds do not guarantee returns, if I invest in an equity fund for over eight years, how much can I expect to earn from it? The second question is that I have not heard much about Canara Robeco Mutual Fund, so if I invest in it, is there any risk that the company may shut down?
- Rajesh

While there isn't any guarantee of returns in equity funds, there is the promise of volatility - which we have been seeing a lot these days. But it does not mean that you will not get anything. The returns that you may get depends on several considerations like - whether you invest through an SIP or in a lump sum, when you start your investment, whether or not you are going to pause your investments frequently, how long you want to stay invested and so on.

The return expectation from the long-term equity investment (five years or more) can be of earning higher than the inflation and bank deposits. The reason is simple - when you invest in equity, you invest in a company that aims to generate some earnings from its business. Your mutual funds buy such companies with the expectation of the company's shares rising in line with its profits, which would factor in inflation, given the different nature of businesses. Thus, we can expect to earn higher than inflation from equity funds.

There was a time - maybe ten years ago - when fixed-income investors were earning about 10-12 per cent, while equity was giving about 20-22 per cent. As interest rates and thus deposit rates have been falling recently and if this situation lingers for long, then I feel the subsequent inflation trajectory can help investors earn about 10 per cent from equity funds over long periods.

But the current situation is grim, as it is a one-of-a-kind situation. One cannot predict how companies will react to this disruption. But to reduce any kind of risks, one should aim to diversify and invest only through SIPs. Having said that, one may expect to earn inflation-beating returns in the long run.

To answer your second question, Canara Robeco MF is an old AMC - a joint venture between Canara Bank and Robeco Group. The structure of MF reduces the chances of firms fading. You may have heard about 'vanishing companies' which came in the 90s and raided many investors. India is a very populated country where we often see such kinds of incidents. But this has never been the case with the fund industry. Further, SEBI is there to monitor such things and protect your money.