A reader wants to know if he can expect “10% per annum” if the investment period is a “minimum of five years”. Again, regular readers of freefincal might dismiss this as a newbie mistake, but it is a common mistake and deserves some attention.
The first point to appreciate is unless we are investing in fixed-income instruments with a guaranteed return, there is no “per annum” return. In a capital market-linked instrument like mutual funds, we have no idea what the (final) returns will be, and they are computed in hindsight. That is at the end of the investment period. Therefore the thumb rule is to expect as low as possible.
Many investors try to compensate for their inability to invest more by taking on more risk assuming that it would fetch them higher rewards. This is a mistake. A higher risk only implies a higher risk. That is, the range of possible returns is higher, and we could end up with any return from a significant positive to a large negative value.
So how do we handle this uncertainty?
- Time. The longer the investment period, the better the chance of us managing the portfolio as per our needs and reducing this uncertainty. Some claim that the longer the investment period, the better the chances of getting a “good return”. This is incorrect. The uncertainty associated with the stock market never dies down! See: The stock market always moves up in the long term, but returns move up and down! If we do not manage risk systematically, we will leave the fate of our investments to luck.
- Asset allocation: The right mix of volatility (equity) and stability (fixed income) is essential. It is the simplest way to reduce return uncertainty. Yet most investors get this wrong. They either use too much equity for too short a time or too less equity for longer periods.
The asset allocation is primarily determined by the investment period. So to pull this off, we must be clear about when we need the money. Many investors first say they want to invest for five years, but when pressed about when they need the money, they say they can afford to invest for longer.
Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
This is why it is crucial to separate short-term goals from longer-term goals. If someone says they can invest for a minimum of five years, we can only offer recommendations for the five years.
A duration of five years is still a fairly short time. The return uncertainty is hard to minimise over this period. Therefore, we recommend avoiding all equity if the goal is crucial (needs). For flexible goals (wants), you can consider a conservative hybrid fund like Parag Parikh Conservative Hybrid Fund.
However, do not expect 10% returns! Do not expect any returns! Just invest as much as you can each month, and there is a reasonable chance of getting 7-8% (assuming this is the only fund and the risk is unmanaged).
Finally, avoid the lure of high-interest-rate fixed deposits or bonds. These come with credit risk; recovery is nearly impossible if they fail.
🔥Enjoy massive discounts on our courses and robo-advisory tool! 🔥
Use our Robo-advisory Excel Tool for a start-to-finish financial plan! ⇐ More than 1000 investors and advisors use this!
New Tool! => Track your mutual funds and stocks investments with this Google Sheet!
- Follow us on Google News.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Join our YouTube Community and explore more than 1000 videos!
- Have a question? Subscribe to our newsletter with this form.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!
Explore the site! Search among our 2000+ articles for information and insight!
About The Author

Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu gets a superpower!” is now available!


Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low volatility stock screeners.
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing

Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want

Your Ultimate Guide to Travel
