Wealth Creation of Equity MFs

Superior returns of ‘equity’ & compounding of such superior return, is key to wealth creation. To tap into asymmetric upside of equity investment, one has to successfully overcome the challenges of stock selection (i.e., fundamentals, valuation, pricing & risk assessment) and timing of transactions (purchase & sale). It requires a certain operational & knowledge bandwidth, to achieve even a modicum of success. That retail investors have not been too successful, is borne by historical data that points to a wide gap between market returns & what investors have in fact achieved. The biggest challenge for investors is that it’s not easy to mitigate risk.

Mutual fund investment presents a much better alternate to direct participation by investors, because of its structure, regulatory overview, professional management & better resources at its disposal. It also affords operational flexibility & tax efficiency, that translates into a better risk-adjusted return.

The disclaimer that Mutual Fund investments are subject to market risks & past performance of the mutual funds is not necessarily indicative of future performance of the schemes, should not be taken lightly. Stock markets are in a state of constant evolution, wherein financial intelligence, capital, randomness & luck play their part in equal measure. The investor has to make sure that investments remain aligned to the risk profile, planned asset allocation & financial objectives.

Following is the list of 10 Mutual Fund – Diversified Equity Schemes (Growth Option), that have created most amount of wealth – over last 25 years. The following list is not a recommendation to invest. It just reflects the possibility & the capacity for superior wealth creation. It points to a need for reflection whether the equivalent results have been achieved by you or if you are just starting out, to make best use of the time ahead for you.

It is important to note the impact of ‘Survivor Bias’ when returns of popular benchmark indices such as S&P BSE Sensex & Nifty 50 are referred to. Sensex was launched on 01st January 1986 with back dated data from base of 100 as on 01st April 1979. Similarly Nifty 50 was launched in 1995 with back dated values from 1990. The back-dated Sensex till 1986 has generated a fabulous CAGR of 28.71%. Sequencing of returns i.e., high returns in initial period significantly improves index return since inception, despite lower return post 1986.

Scheme Selection should be in context of investors’ personal finance & all the ‘musts’ of prudent investing.

  • Wealth Creation needs both time & returns.
  • Longer time & Superior returns create the perfect magic.
  • Mutual Funds in India have been able to achieve even better outcomes than benchmark indices, since the times it has been in operation.

The caveat is that the scheme would have remained invested over the entire period – in all seasons of economic performance & stock market volatility.

Wealth Creation of Equity Investment
Investment of Rs. 1 lakh in S&P BSE Sensex – on Reference Date
Current Value of Rs. 1 Lakh Investment – as on 04th July 2022
IndexReferenceDatePeriod (Years)CAGR % since inceptionValue as on 04/07/2022 (Rs.)
S&P BSE SensexBase @ 10001/04/197943.2915.615,32,34,770
S&P BSE SensexLaunch @ 549.4301/01/198636.5313.3496,89,091
S&P BSE SensexEarliest MF @ 3292.8501/12/199328.6110.2216,16,678

Wealth Creation by Diversified Equity MF schemes over last 25 Years
 
Asset Management by 10 Mutual Fund Houses
 
Rs. 1 Lakh Investment on 05th July 1997
Sno.SchemeScheme LaunchCAGR %
(over 25 Years)
Market Value
on 04th July 2022
(Rs.)
1HDFC Taxsaver FundMar-9623.842,09,66,386
2Nippon India Growth FundOct-9522.171,49,31,875
3Franklin India Pima FundDec-9321.251,23,60,718
4Aditya Birla SL Tax Relief 96Mar-9621.011,17,63,364
5Tata India Tax Savings FundMar-9618.9776,90,181
6DSP Flexi Cap FundApr-9717.9261,61,504
7Nippon India Vision FundOct-9517.6257,81,352
8ICICI Prudential Multicap Oct-9417.0150,76,618
9Sundaram Tax Savings FundMar-9616.3944,45,204
10Canara Robeco Equity Tax Saver Mar-9315.3135,21,067
Nifty 50 Index – as on 04th July 2022 – 16,214.70 
Nifty 50 Index – 25 years ago at 1216.10Jul-9710.81%13,00,313
Nifty 50 Index – since Inception (Base of 1000)Nov-9510.91%15,83,535

One Comment

  1. […] Income tax is a cost, directly attributable to an investment. This drag on return can be reduced by choosing a mode of investment that invites least income-tax incidence, while maximizing the return potential. It is the ‘post-tax-return’ that is relevant for the investor. A reduction in the income-tax cost, naturally improves the net rate of return for the investor & increases the pace of compounding of wealth creation. […]

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