How can a low-risk investor earn 12% returns p.a. by investing in stocks and mutual funds?
How Low Risk Investors Can Earn 12% Return P.A by Investing in Stocks & Mutual Funds
Since you are looking to earn 12% returns and classify yourself as a low risk profile, we would rule out buying single stocks to earn the desired returns. Buying a single stock or even a handful of stocks is what is called a non-diversified strategy. It a good strategy for someone who has a firm conviction in their calls – if it works out can give you much higher returns than 12% but when you are placing your bets on a few stocks the calls can also be wrong and you can see significant downside. So this is a higher risk/higher return strategy then what you are aiming for.
A portfolio of mutual funds in different kinds of investments (such as equities, bonds, gold etc, what we call asset classes) is much more suited for your purpose. We have written a blog on the approach you should take to build a diversified mutual fund portfolio to achieve your specific return target.
Read: How you can earn 15% annual returns on your investments
For your specific return target of 12% a debt-heavy portfolio is recommended – so about 55% in gilt funds, 30% equity funds and 15% in gold funds. Such a portfolio has given ~12% returns historically. However it is also important to be aware that such a portfolio will come with risks, though we have tried to come up with a portfolio to which takes the least amount of risk for 12% returns. To see the risk associated with this portfolio (such as minimum returns which were seen in the past etc.) and hence to decide whether this portfolio is suitable for you can visit our website and create a simple email login.
See: The risk and return in different ORO portfolios
One thing that some people suggest is buying a balanced fund which invests in multiple asset classes – so in you case you can investment in a balanced fund which has about a 60-40 debt-equity ratio. However we at ORO do not recommend such an approach, since holding a balanced fund, especially debt-oriented ones can mean very high costs. You are much better off building you own diversified portfolio.
Also, always invest using direct plans (0-commission), either through a platform like ORO, or AMC websites or MFU. By doing so you can get an extra 1% (approx) in returns every year.