Invest ₹5 lakh in a hybrid mutual fund for 5 years and watch it potentially grow to ₹15.14 lakh [EXPLAINED]
Investors are increasingly looking for structured strategies that offer balanced growth and long-term gains. In this example, we explore a five-year investment in HDFC Balanced Advantage Fund with an STP (Systematic Transfer Plan) to HDFC Mid-Cap Opportunities Fund, aiming to maximize returns through balanced fund growth and targeted mid-cap exposure. All calculations are based on the last 3 years’ CAGR as of October 27, 2024.
Fund types and growth rates:
- HDFC Balanced Advantage Fund – Direct (Hybrid Fund): A hybrid fund combines equity (stocks) and debt (fixed income) investments to balance growth potential and risk. By diversifying into both types of assets, hybrid funds offer moderate risk, making them ideal for investors looking to grow their wealth with a controlled level of exposure to market fluctuations. The HDFC Balanced Advantage Fund, in particular, provides a 3-year CAGR of 23.42%.
- HDFC Mid-Cap Opportunities Fund – Direct (Equity Fund): An equity fund focuses primarily on stocks to provide potentially high returns over the long term. In this case, the HDFC Mid-Cap Opportunities Fund emphasizes mid-cap stocks—companies that are not yet large-scale but show strong growth potential. With a 3-year CAGR of 29.68%, this fund aims to capture the growth of emerging mid-sized companies in the market, albeit with higher volatility than a hybrid fund.
Initial investment and STP setup
- Initial Investment: ₹5 lakh is invested in the HDFC Balanced Advantage Fund, allowing the balance to grow while monthly transfers are made.
- Monthly STP: ₹5,000 is systematically transferred to the HDFC Mid-Cap Opportunities Fund, allowing growth from both funds through compounding while maintaining a monthly drawdown from the Balanced Advantage Fund.
Investment breakdown and calculated returns after 5 years
1. Total investment:
- One-time initial investment: ₹5 lakh in the HDFC Balanced Advantage Fund.
- Total STP amount transferred: Over five years, ₹5,000 is transferred monthly to the Mid-Cap Fund, amounting to ₹3 lakh.
2. Returns from each fund:
- HDFC Balanced Advantage Fund – Direct:
- Final balance after 5 years, post-STP deductions: ₹9.05 lakh.
- Total earnings from this fund after factoring in STP deductions: ₹7.05 lakh.
- HDFC Mid-Cap Opportunities Fund – Direct (via STP):
- Future value after 5 years: ₹6.09 lakh.
- Total earnings in the Mid-Cap Fund from STP contributions: ₹3.09 lakh.
3. Final corpus:
- The total corpus after 5 years, combining both funds’ returns, amounts to approximately ₹15.14 lakh.
Detailed analysis of growth
The initial investment in the HDFC Balanced Advantage Fund not only grew independently at a rate of 23.42% CAGR but also facilitated the monthly STP to the HDFC Mid-Cap Opportunities Fund. The Mid-Cap Fund’s higher 29.68% CAGR maximized returns on the transferred amount, allowing both funds to compound and contribute to the overall corpus.
| Component | Amount (₹) |
|---|---|
| Initial Investment (Balanced Advantage) | 5,00,000 |
| Total STP Contributions to Mid-Cap Fund | 3,00,000 |
| Final Balance in Balanced Advantage | 9,05,081 |
| Future Value of STP in Mid-Cap Fund | 6,09,160 |
| Total Corpus After 5 Years | 15,14,241 |
Conclusion
By leveraging the HDFC Balanced Advantage Fund as a primary investment vehicle with STP transfers to the HDFC Mid-Cap Opportunities Fund, investors can create a diversified growth portfolio that balances risk with potential high returns. The strategic combination of consistent mid-cap exposure and balanced fund stability allowed the investment to grow to approximately ₹15.14 lakh over five years, with clear gains from both funds.
Disclaimer: This example is based on the 3-year CAGR of these funds as of October 27, 2024. All calculations are hypothetical and intended for illustrative purposes only. Mutual Fund investments are subject to market risks, and past performance is not indicative of future results. Please consult with a financial advisor to understand potential risks and returns before investing.