The stock market could be unstable and dealing with many difficulties. The market's turbulence and uncertainty, however, don't concern many investors, particularly novice ones. The majority of them are interested in learning how to maximise their profits over the following year or two. It becomes obvious that they are asking the question sincerely after asking them further questions. That made us wonder if other mutual fund middlemen had seen similar queries from investors.
An experienced mutual fund advisor claims that it is a typical occurrence in the market. He claims to have witnessed several investors who held off on investing throughout the boom suddenly pluck up the guts to do so, either towards the tail end of the rally or during a tumultuous period. He and other advisors claim that many clients believe investing to be similar to gambling. They generally avoid committing to an investment procedure because of this.
That's enough preaching, right? Let's look at few areas where you may earn the most in a year or two. In the last year, it is true that certain funds did provide 100% returns. Yes, despite market volatility and declines, the majority of long-term investors are still sitting on a 25–30% profit today. You cannot, however, expect a repeat performance. Like a bank deposit, the stock market does not provide predictable returns. You can't expect your investments to pay off every year. Although you could earn 50% in a year, the market might decline 20% the following year. Because of this, everyone speaks about long-term returns of 15%. No, the number is not an educated assumption. It is the stock market's long-term average return on investment.
After taking care of the fundamentals, let's get to the heart of the matter: which mutual funds will provide the highest returns in the next year or two. Okay, let's try to define what the best returns are, according to mutual fund managers and advisors. Investors are headed in the wrong direction, according to advisors, if they are thinking about last year's gains. No mutual fund strategy, so the argument goes, is expected to provide 100% returns this year. The market may always surprise you, though, so this prediction is just that—a prediction.
Next, be prepared for some unpleasant surprises if you want to invest in stocks or equities mutual funds for a year or two (remember, they invest in stocks). You will have to sell your investments at a loss if the market enters a difficult phase and you need the money. Therefore, if you can't invest for more than five to seven years, never invest in equities mutual funds. Always keep in mind that short-term risk in stocks is very high.
Where else might you invest money to get higher returns? Equity is a given if you are investing for a little term, as you have previously discovered. You are now left with money for short-term debt and funds for arbitrage. Since arbitrage funds are treated like equities, they could provide you with superior post-tax returns if you invest for a little more than a year. This implies that the tax you must pay on your earnings is merely 10%. If you plan to invest in debt funds for fewer than three years, there is no tax benefit. Taxes on short-term capital gains from debt funds are similar to those on fixed bank deposits. Additionally, debt markets may be unpredictable, and interest rates are about to soar. So proceed with caution.