Investment Type, Duration vs Risk vs Returns
Below is a chart that shows the investment type, typical returns per annum, the usual holding duration, and a simple risk scale (1 = lowest, 8 = highest).
The higher the time period, the higher the returns and the lower the risk.
Investment Types: Returns, Duration, and Risk
| Type | Sub-Type | Typical Returns p.a. | Typical Holding Duration | Risk Level (1–8) |
|---|---|---|---|---|
| Bank Account | Savings Account | 3–4% | as and when required | 1 |
| Bank Account | FD, CD, etc. | 5–8% | fixed duration | 1 |
| Debt | Ultra Short Duration | 4–7% | 1–6 months | 2 |
| Debt | Short Duration | 5–8% | 1–3 years | 3 |
| Debt | Medium Duration | 6–9% | 3–7 years | 3 |
| Debt | Long Duration | 7–10% | > 7 years | 4 |
| Balanced | Balanced mutual funds | 8–11% | 3–5 years | 5 |
| Large Cap | Large Cap Mutual Funds | 11–15% | > 5 years | 6 |
| Mid Cap | Mid Cap Mutual Funds | 12–25% | > 7 years | 7 |
| Small Cap | Small Cap Mutual Funds | 15–30% | > 7 years | 8 |
Risk scale: 1 = lowest risk, 8 = highest risk. Returns are indicative ranges, not guarantees.
Key Takeaway
So, the longer you invest, the higher the odds of better returns. Riskier categories like small-cap mutual funds usually need a long holding period (> 7 years) to maximise return potential and to mitigate drawdowns.
FAQ
Why do longer holding periods often reduce risk?
Over longer horizons, short-term volatility tends to smooth out. Businesses have more time to execute and mean reversion helps reduce the impact of temporary drawdowns, especially in diversified equity funds.
Which investment types have the lowest risk?
Savings accounts and fixed deposits generally have the lowest risk (Risk Level 1) because returns are relatively predictable and capital is usually protected, subject to issuer risk and applicable regulations.
How long should I hold small-cap mutual funds?
Small-cap funds are higher risk (Risk Level 8). A holding period of more than 7 years is typically recommended to allow cycles to play out and to improve the chance of capturing the higher return potential.
Are the return ranges guaranteed?
No. The percentages shown are typical historical ranges for illustration only—not guarantees. Actual returns and risks depend on market conditions and product selection.