I am 18 and I want to invest Rs 2,500 as SIP every month and plan to redeem at 55. What kind of mutual funds should I invest in? What kind of return can I expect in 37 years?

Ans: As an 18-year-old looking to invest Rs 2,500 per month through SIP (Systematic Investment Plan) and aiming to redeem the investment at age 55, you have a long investment horizon ahead of you, which is great for investing in equity mutual funds. Equity mutual funds have historically provided higher returns over the long term compared to other asset classes like debt or fixed deposits.

Here are the steps you should consider:

• Risk Profile Assessment: Understand your risk tolerance. Since you're young and have a long investment horizon, you can afford to take higher risks. Equity mutual funds are more volatile in the short term but tend to offer better returns over the long run.
• Asset Allocation: Consider a diversified portfolio of equity funds to spread out the risk. You may also allocate a smaller portion to debt funds or other conservative options for stability.

Types of Mutual Funds:

• Large-cap funds: These invest in large, well-established companies with a proven track record. They are relatively less risky compared to mid-cap and small-cap funds.
• Mid-cap and small-cap funds: These invest in mid-sized and small-sized companies, respectively. They have the potential to offer higher returns but are riskier.
• Multi-cap funds: These invest across market capitalisations and offer diversification.
• Index funds: These mimic a particular market index, such as the Nifty or Sensex. They have lower expense ratios but may offer slightly lower returns compared to actively managed funds.
• Sector funds: These invest in specific sectors like technology, healthcare, etc. They can be riskier as they are heavily dependent on the performance of a particular sector.
• Historical Returns: It's important to note that past performance is not indicative of future results. However, historically, equity mutual funds in India have delivered annualised returns of around 12-15% over the long term. Your actual returns may vary based on market conditions.

Regular Review: Regularly review your investment portfolio and make changes as needed based on your financial goals, risk tolerance, and market conditions.

Professional Advice: If you're unsure about selecting mutual funds, consider seeking advice from a financial advisor who can help you choose funds aligned with your goals and risk profile.

Given your investment horizon of 37 years and historical market performance, you could expect substantial growth in your investment over time. However, it's essential to remain disciplined and continue investing regularly, regardless of short-term market fluctuations.

It is impossible to predict the exact return you can expect over 37 years. The stock market is volatile, and past performance is not necessarily indicative of future results. However, historically, the Indian stock market has provided an average annual return of around 12-14%. This is just a historical average, and your actual returns may be higher or lower.