Yes, absolutely right. The underlying fact remains and irrespective of what guidelines come out, all investors must understand and keep this in mind, there are no guaranteed returns whatsoever in any mutual fund schemes. So, be it debt, be it target maturity funds, be it equities, be it hybrid, there is no guaranteed return whatsoever. If anybody has been telling you that it is a target maturity fund, so whatever investments they are doing they are going to hold on to those papers and you are definitely going to get that return, that is wrong. So, these returns are only indicative.
Now, what is this whole issue about? There are certain products which combine an SIP over a period of, say, probably 10-20 years and thereafter talk about SWP, a systematic withdrawal plan, which is a multiple of the SIP that you make. For example, there is an illustration that if you invest Rs 10,000 every month, then after probably 10 or 15 or 20 years, you can withdraw 40,000 or 50,000 every month. So, this kind of projects to the investor that this is more or less a guaranteed return. It is like saying that I am putting 10,000 now and I am eligible to remove 50,000 which I will get in the form of guarantee.However, the underlying calculations have certain assumptions. What Sebi has tried to do in the circular of March 2023 is say that you cannot combine a product like this and give an impression to the investor that it is a guaranteed return. Now, AMFI, in the best practices guidelines, has come out with the same thing and has standardised what illustrations to use, what is a good practice, wherein mutual finds will be giving an illustrative return for which they have taken a 10-year rolling return as a benchmark.
So, if you are investing into equities and an illustration needs to be given to an investor to understand the power of compounding, an illustrative return will be indicated. Say, for example, it will be in the range of 12% to 13%. For example, for the Sensex, the circular says the 10-year rolling return is 12.64% and the Nifty is 12.93%. If you are going into the hybrid categories, which have equity of 75% allocation and then again they are very clearly specified that if you are using a Sensex that will be 11.28% and Nifty 11.50%.
All the categories have been standardised so that an investor will know exactly what they are looking at and that is based on the 10-year rolling return. Whatever happened in the past, if there is a 12.93% illustrative return, it does not mean that that is going to happen in the future as well but just that it will be an indicative assumption for an investor to understand how the power of compounding will work.
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