Before you make an investment into a mutual fund scheme, it would be acceptable, and in fact advisable, to examine the past returns of the scheme vis-a-vis similar mutual fund schemes in order to make a fair assessment of this mutual fund's growth potential in future.
It's vital to realise that a scheme's historical returns can be capitalised only if you stay invested for a long time. Being invested for a long term enables you to reap the benefits of compounding.
'Compounding' is a phenomenon that enables retail investors to earn high returns by virtue of remaining invested for a long period of time. The rationale behind compounding is quite simple. The returns given by a scheme in the first few years are added to the investment, thus helping you capitalise on it further towards the later part of your investment tenure.
As a result, the returns given in the later years turn out to be considerably higher than those of the first few years.
Here, we handpick a mutual fund scheme -- JM Value fund -- and examine its returns since its launch on June 2, 1997. Since the scheme's inception, the mutual fund has delivered a compound annual growth rate (CAGR) return of 17.78 percent which means an investment would have grown 8.78 times during this period. Let us understand more on this here.
| Tenure | ₹1 lakh would have grown to | Return (%) |
| 1 | ₹1.54 lakh | 54.29 |
| 3 | ₹2.13 lakh | 28.77 |
| 5 | ₹3.34 lakh | 27.3 |
| 10 | ₹5.64 lakh | 18.89 |
| Since inception | ₹87.83 lakh | 17.78 |
(Source: jmfinancialmf.com & AMFI; Returns till Sept 30, 2024)
As one can see in the table above, if someone had invested ₹one lakh in JM Value Fund a year ago, the investment would have grown to ₹1.54 lakh, thus giving a return of 54.29 percent. And if the same investment of ₹one lakh were made in the scheme three years ago, it would have grown to ₹2.13 lakh in a three-year period.
The same investment of ₹one lakh would have swelled to ₹3.34 lakh if you remained invested for half a decade. In a 10-year-period, the investment of ₹one lakh would have grown to ₹5.64 lakh, thus giving a return of 18.89 percent.
And if you had invested ₹one lakh at the time of scheme's launch in 1997, the investment would have grown to 87.83 lakh by Sept 30, 2024, thus giving an annualised return of 17.78 percent.
JM Value Fund has total assets under management (AUM) of ₹1,064 crore, as on Oct 7, 2024. The scheme's benchmark index is BSE 500 TRI and additional benchmark index is Nifty 50 TRI. The scheme's fund managers are Satish Ramanathan, Asit Bhandarkar, Chaitanya Choksi and Ruchi Fozdar. The scheme has invested 99.86 percent in equity and the remaining is in debt/cash.
The top constituents of the fund include HDFC Bank, NTPC, Dr Reddy's Labs, ICICI Bank, HPCL, Infosys, TREPS, Restaurants Brands Asia, LIC Housing Finance and SBI.
However, it is vital to mention here that the past returns do not guarantee any scheme's future returns. In other words, simply because a mutual fund gave exemplary returns in the past, it does not mean it will continue to deliver the returns at the same pace in the future as well. Retail investors, therefore, are supposed to examine other considerations as well before deciding to invest.
Note: This story is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment related decision.
