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Business News/ Money / Calculators/  Total returns include capital appreciation and income accrued investments
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Total returns include capital appreciation and income accrued investments

This concept is relevant more to funds that pay out dividends regularly

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What is total return? How important it is for a mutual fund (MF) investor?

—Bijoy Das

Total returns from a portfolio takes into account both the capital appreciation produced by investments as well as the income accrued from the investments (in the form of interest and dividends). In the context of MF investing, this concept is relevant more to funds that pay out dividends regularly (such as debt funds). For growth plans of MF schemes, the total returns of a fund are fully captured in the form of the net asset value (NAV) growth (capital appreciation) of the fund. Hence, if you are trying to evaluate a fund’s performance, you should stick to evaluating the fund’s growth plan.

If you are trying to determine your own portfolio’s performance and if you are holding dividend plans of some schemes, you should look at the total returns (including both NAV growth and dividends received) to see how much you really gained from your investments.

I am 28 years old and would like to invest in MFs. At the moment, I do not have any investments. I can invest up to 15,000 a month. I’m also looking to save some tax. What kind of funds should I invest in?

—Shaheen

Thanks to the recent budget announcement, the maximum amount that can be invested in tax-saving MFs for claiming deduction under section 80C has been increased to 1.5 lakh.

Given that this section includes provision for various financial instruments, including provident fund, insurance and home loans, you would first need to figure how much of this allowance you can utilize for tax deduction.

Once you identify that, you should salt away that investment as soon as possible in good tax-saving funds such as Axis Long Term Equity and Quantum Tax Saving funds.

After you are done with your tax saving investments, you can start your systematic investment plan (SIP) in a diversified portfolio of regular MFs.

Assuming that you plan to invest for a reasonably long term (5-plus years), a balanced portfolio of a large-cap fund, two diversified funds and two small- and mid-cap funds will fit the bill nicely. For example, a portfolio with these schemes—Franklin Templeton Blue Chip, UTI Opportunities, Quantum Long Term Equity, ICICI Prudential Discovery and IDFC Premier Equity funds would make a good portfolio along these lines.

Queries and views at mintmoney@livemint.com

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Published: 05 Sep 2014, 06:40 PM IST
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