Investment Strategies for Achieving 2x Returns in 6 Years in the Mutual Fund Market
It is essential to clarify that achieving a 2x return in 6 years is highly speculative and carries significant risks. However, with the right market insights and investment strategies, it might be possible. This article explores how to strategize your investments in mutual funds to potentially achieve such a target, considering current market conditions and potential future scenarios.
Understanding the Required Compound Growth
To achieve a 2x return in 6 years, your investment must compound at a rate of approximately 12-13 on a compounding basis. This means your initial investment needs to grow by a factor of 13 over the next six years.
Current Market Conditions and Entry Point
Starting from June 2019, the benchmark index Nifty is trading at a trailing P/E ratio of 29x. For significant compound growth, you need a good starting point of entry. At present, an equity-related mutual fund’s starting PE valuation of around 29x does not bode well for expecting double-digit returns over the next few years.
Unless earnings of Nifty 50 companies see a substantial improvement, which seems unlikely, you should not expect such returns. Therefore, waiting for a market correction to enter at lower valuations would be prudent. An entry point around 19-2 trailing PE valuations might offer better opportunities.
Market Trends and Investment Themes
The current political landscape, with the majority seats in the Loksabha and a reform-oriented mindset, suggests that the Bharatiya Janata Party (BJP) government will focus on significant infrastructure spending and job creation over the next 2-3 years. This presents an opportunity for investments in the infrastructure sector.
1. Infrastructure Sector Funds: Companies and mutual funds investing in the infrastructure theme could be ideal for investment. With a focus on tangible assets and government support, the infrastructure sector can provide stable returns.
2. Job Creation and Economic Growth: Job creation initiatives and overall economic growth can lead to an increase in corporate earnings. Mutual funds that capitalize on such macroeconomic trends can achieve higher returns.
Conclusion and Final Thoughts
It is crucial to consider the volatile nature of sector-specific funds. While aiming for a 2x return in 6 years is challenging, it is not impossible. A strategic approach that takes into account market corrections, macroeconomic trends, and sector-specific opportunities can increase your chances of success.
Always remember that market conditions, economic policies, and company performance can significantly impact investment outcomes. Expert advice and thorough research are recommended before making any investment decisions.
Cheers!!
Parthiv Shah