Top Long Term Mutual Funds to in Invest in 2024 in India
If you’re a fan of long term investing, you may find Long Term Mutual Funds especially intriguing. Long Duration mutual funds offer substantial return potential, but they come with high volatility and risks. To benefit from these funds, active monitoring is essential to track their performance in the market. While they can yield impressive dividends, they are best suited for investors comfortable with higher risk levels seeking greater returns.Let us now learn more about these funds!
What are long term mutual funds?
Investments fall into two categories: short-term and long-term. Short-term investments typically span a few days to three years with the aim of earning higher returns than keeping money in a savings account, and to meet immediate goals. Long-term investments, on the other hand, extend beyond five years and are instrumental in wealth creation. They align with various objectives like home buying, retirement planning, funding a child’s education, and building wealth, often found in the form of top-performing Equity Mutual Funds.
Top Long Term Mutual Funds to Invest in
The following is an educational list of the best long term mutual funds:
| Fund Name | 1Y Returns | Fund Size |
|---|---|---|
| Quant Infrastructure Fund | 13.1% | ₹980 |
| Kotak Infrastructure and Economic Reform Fund | 24.9% | ₹1,137 |
| SBI Contra Plan Fund | 21.9% | ₹16,337 |
| Motilal Oswal Midcap Fund | 20.4% | ₹5,953 |
| Quant Tax Plan Fund | 9.4% | ₹4,925 |
| SBI Magnum Mid Cap Fund | 19.2% | ₹13,245 |
| Axis Small Cap Fund | 21.8% | ₹16,175 |
| SBI Consumption Opportunities Fund | 16.3% | ₹1,632 |
| Bandhan Tax Advantage (ELSS) Fund | 16% | ₹5,160 |
| ICICI Prudential Value Discovery | 19.2% | ₹33,939 |
Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.
Note: The data on the top large cap mutual funds in India in the list is from 24th January, 2024. However, for real-time updates on stock prices and market trends, visit the smallcase stocks collection today!
Overview of the Best Long Duration Mutual Funds
Here is a brief overview of the best mf for long term:
Quant Infrastructure Fund
The scheme’s main objective is to generate capital appreciation and offer long-term growth opportunities by investing in a portfolio of infrastructure-focused companies. It is also one of the best consumption mutual funds.
Kotak Infrastructure and Economic Reform Fund
The scheme aims to achieve long-term capital appreciation through a diversified portfolio of primarily Indian equity and equity-related securities. It is one one of the best mutual fund for long term investments in 2024.
SBI Contra Plan Fund
The scheme aims to achieve long-term capital appreciation for investors through a diversified portfolio of equity and equity-related securities, employing a contrarian investment strategy. It is also one of the top long term investment mutual funds in 2024.
Motilal Oswal Midcap Fund
The scheme aims to achieve long-term capital appreciation by investing in mid-cap companies with enduring competitive advantages and growth potential. It is also one of the top mutual fund long term investments.
Quant Tax Plan Fund
The scheme primarily seeks capital appreciation through investments in growth potential equity shares. Additionally, it aims to provide dividends and other income. It is also one of the best fund for long term investment.
SBI Magnum Mid Cap Fund
The scheme primarily invests in a diversified basket of midcap company equity stocks to offer investors long-term capital growth and the flexibility of an open-ended scheme. It is also one of the best long term growth mutual funds.
Axis Small Cap Fund
This long term mutual fund investment aims to create long-term capital appreciation by primarily investing in a diversified portfolio of small-cap companies’ equity and equity-related instruments. It is also one of the best mutual funds to invest in long term.
SBI Consumption Opportunities Fund
The scheme aims to offer investors the opportunity for long-term capital growth by investing in a diverse portfolio of equity and equity-related securities within the Consumption sector. It is also one of the best mutual funds for long term 2024 investments.
Bandhan Tax Advantage (ELSS) Fund
The scheme aims to construct a diverse portfolio by investing in stocks of companies with robust fundamentals, trading at attractive valuations. It can invest fully in equities and equity-related securities and allocate up to 20% in debt and money market instruments.
ICICI Prudential Value Discovery
The scheme aims to generate returns by investing primarily in a diversified portfolio of value stocks, combining dividend income and capital appreciation.
Factors to Consider When Choosing Long-Term Mutual Funds
When it comes to selecting long-term mutual funds, there are several key factors to consider to make informed investment decisions. Here’s a breakdown of what to keep in mind:
- Investment Goals: Begin by defining your investment objectives. Are you looking to build wealth for retirement, fund your child’s education, or achieve other financial goals? Understanding your purpose will help you select a fund aligned with your objectives, to build the best mutual fund portfolio for long term.
- Risk Tolerance: Assess your risk tolerance. Long-term mutual funds can vary in risk levels. Consider how comfortable you are with market fluctuations and choose funds that match your risk profile.
- Fund Type: Long-term funds come in various types, such as equity, debt, hybrid, and more. Each type serves a distinct purpose. Ensure the fund type aligns with your investment goals and risk tolerance.
- Historical Performance: Review the historical performance of the fund. While past performance doesn’t guarantee future results, it can provide insights into how the fund has fared over different market conditions.
- Fund Manager Expertise: The fund manager plays a critical role in a fund’s performance. Investigate the track record and expertise of the fund manager managing the long-term fund you’re considering.
- Expense Ratio: The expense ratio impacts your returns. Lower expense ratios mean more of your investment goes toward generating returns. Compare expense ratios to make cost-effective choices.
Features of the Best Mutual Fund For Long Term
Long duration mutual funds offer distinct features that set them apart from short-term or mid-term investment options. Understanding these characteristics can help you make informed investment decisions when considering long-term financial goals:
- Long Investment Horizon: These funds are designed for investors with a long investment horizon, typically five years or more. They provide the opportunity to capitalize on the power of compounding and benefit from the potential growth of financial markets over extended periods.
- Risk and Reward: Long duration funds tend to carry a higher level of risk compared to short-term options. However, this risk can also lead to potentially higher returns over time. Investors should be prepared to weather market fluctuations while staying focused on their long-term goals.
- Diversification: Fund managers diversify the portfolio by investing in a mix of asset classes, such as equities, debt securities, and other financial instruments. This diversification helps spread risk and can enhance overall portfolio stability.
- Professional Management: Long term mutual funds with high returns are actively managed by professional fund managers who make investment decisions on behalf of investors. These experts aim to identify opportunities and manage risks effectively.
How to Choose the Best Long Duration Mutual Funds for Investment?
The following actions have been known to aid investors while choosing the most suitable and profitable long term MFs to invest in:
- Set Clear Goals: Define your financial objectives, whether it’s retirement, education, or buying a home.
- Assess Risk: Gauge your risk tolerance to match funds with your comfort level.
- Fund Type: Pick equity, debt, or hybrid funds that align with your goals and risk profile.
- Past Performance: Consider historical performance for insights into consistency and management expertise.
- Expense Ratio: Opt for funds with lower expense ratios to minimize costs.
- Fund Manager: Research the fund manager’s experience and track record.
- Diversification: Choose funds with diversified portfolios to reduce risk.
- Fund Size: Consider the fund’s size, which can indicate popularity and liquidity.
- Exit Load and Lock-In: Be aware of any exit load charges or lock-in periods.
- Consistency: Prioritize funds that consistently perform well over market cycles.
- Tax Efficiency: Evaluate the tax implications of your investment for potential benefits.
How to Invest in the Best Long Duration Mutual Funds?
Investing in the best sip plan for long term or mutual funds, is a strategic financial decision that requires careful consideration. Here’s a step-by-step guide to help you navigate this process effectively:
1. Define Your Financial Goals
Start by identifying your long-term financial objectives. Are you saving for retirement, your child’s education, or a major purchase? Understanding your goals will help you choose a fund that aligns with your aspirations.
2. Assess Your Risk Tolerance
Determine your risk appetite. Are you comfortable with market volatility, or do you prefer a more conservative approach? Your risk tolerance will guide you in selecting the right type of long-term mutual fund.
3. Choose the Fund Type
Based on your goals and risk tolerance, decide whether you want to invest in equity funds, debt funds, or a combination of both. Long-term equity funds tend to offer higher growth potential, while debt funds provide stability.
4. Research Fund Performance
Look at the historical performance of popular mutual funds you’re interested in. Pay attention to factors like annual returns, consistency, and how the fund has weathered economic cycles.
5. Select a Reputable Fund House
Choose a mutual fund from a well-established and reputable fund house. Research their track record, customer service, and the expertise of their fund managers.
6. Set a Budget
Determine the amount you’re comfortable investing. Whether you’re starting with a lump sum or opting for a Systematic Investment Plan (SIP), establish a budget that aligns with your financial capabilities.
7. Monitor and Adjust
Regularly monitor your investments and make adjustments as needed. Your financial goals and market conditions may change over time, so stay proactive in managing your portfolio.
Why are Equity Funds The Best For Long Term?
Equity funds, including large caps, midcap funds, small cap mutual funds, value funds, multi-cap funds, and Equity Linked Savings Schemes (ELSS Funds), allocate a minimum of 65% of their assets to equities or company shares. This provides a diversified approach for small investors to own shares in multiple companies. However, this ownership entails certain risks.
In the short term, stock prices fluctuate due to market forces, company performance, corporate actions, and government policies. In the long term, companies tend to grow and stabilize, passing on the benefits to investors. Equity markets are highly sensitive, and fluctuations can be swift. While traders may leverage short term market movements, equity mutual fund investors often rely on fund managers for decision-making. It’s advisable to maintain a long term perspective, as patience is rewarded with significant market-beating returns. Seeking professional advice on the best mutual funds to invest for long term is recommended.
How do Long Duration Mutual Funds Work?
Long Duration Mutual Funds operate with a unique strategy that sets them apart from their counterparts. Here’s a breakdown of how these funds work:
- Extended Maturity Period: Long duration funds primarily invest in bonds and securities with longer maturities. These can range from 10 years to 30 years or more. The extended maturity period allows investors to benefit from higher interest rates and potentially capitalize on capital appreciation when interest rates decline.
- Interest Rate Sensitivity: Long duration funds are highly sensitive to interest rate changes. When interest rates fall, the existing bonds with higher yields become more attractive, leading to potential capital gains. Conversely, when interest rates rise, bond prices may decline, affecting the fund’s net asset value (NAV).
- Income Generation: These funds are suitable for investors seeking regular income. They provide periodic interest payouts, making them a preferred choice for retirees or those looking for a steady income stream.
- Volatility and Risk: Long duration funds can exhibit higher volatility due to their interest rate sensitivity. Investors should be prepared for NAV fluctuations and assess their risk tolerance before investing.
- Portfolio Diversification: These funds often invest in a mix of government securities, corporate bonds, and other fixed-income instruments. This diversification can help spread risk across various debt instruments.
- Tax Efficiency: Long duration funds may offer tax benefits if held for a more extended period. The tax on long-term capital gains (LTCG) is often lower compared to short-term gains, making them a tax-efficient choice.
How are Returns Calculated on Long Term Mutual Funds?
When it comes to evaluating the best long term mutual funds in India, understanding how returns are calculated is vital. Here’s a concise look at the process:
1. Net Asset Value (NAV): NAV represents the fund’s per-unit market value. It’s calculated by deducting liabilities from the total asset value and dividing by the outstanding units. NAV is computed daily.
2. Holding Period Returns: This metric assesses performance over a specific time frame. The formula is simple:
Holding Period Return (%) = [(Final NAV – Initial Investment) / Initial Investment] x 100
3. Compounded Annual Growth Rate (CAGR): CAGR accounts for compounding effects, offering a more precise view of long-term performance. The formula is:
CAGR (%) = [(Ending NAV / Beginning NAV) ^ (1/n) – 1] x 100
4. Total Returns: Consider all gains and income received, not just NAV appreciation. Divide this by your initial investment.
5. Volatility and Risk-Adjusted Returns: Though not direct return calculations, these metrics assess a fund’s performance relative to risk levels. Sharpe ratio, Sortino ratio, and other measures offer insights.
Example of a Long Duration Mutual Fund
Let’s illustrate the performance of mutual funds for long term investment with an example. Use the formula given below to calculate returns:
Return (%) = [(Final NAV – Initial Investment) / Initial Investment] x 100
Scenario: You invest ₹100,000 in a long duration fund focusing on government securities at the beginning of the year.
Interest Rate Movement: As interest rates gradually fall over the year, the fund’s NAV increases, reflecting the rising value of existing securities in the portfolio.
Return Calculation: At year-end, the NAV reaches ₹110,000, resulting in a ₹10,000 gain, or a 10% return on your initial ₹100,000 investment.
This example highlights how long duration funds can provide significant returns when interest rates decline. Keep in mind that these funds carry interest rate risk, meaning rising rates can impact returns. Therefore, closely monitoring interest rate trends and maintaining a long-term investment horizon are crucial for potential benefits.
When to Invest in Long Duration Mutual Funds?
Long Duration Mutual Funds are a unique category of fixed-income funds that cater to specific investment objectives and risk preferences. Here are key scenarios when it makes sense to consider investing in Long Duration Funds:
1. Seeking Potential Higher Returns: If you’re an investor willing to take on a higher level of interest rate risk in exchange for potentially higher returns, Long Duration Funds can be an attractive option. These funds typically deliver higher yields compared to short or medium duration funds, making them suitable for those looking to optimize their fixed-income returns.
2. Anticipating Falling Interest Rates: Long Duration Funds are most effective when interest rates are expected to decline or remain stable. If you anticipate a favorable interest rate environment, these funds can help you lock in higher yields, potentially leading to capital gains as bond prices rise due to falling rates.
3. Long-Term Goals: If your investment horizon is long-term, such as retirement planning or saving for a child’s education, Long Duration Funds can align with your extended financial objectives. These funds offer the potential for capital appreciation and are well-suited for investors with a lengthy investment horizon.
4. Risk Tolerance: Long Duration Funds are more sensitive to interest rate changes, which can lead to price volatility. If you have a higher risk tolerance and can endure short-term fluctuations in pursuit of potential long-term gains, these funds may fit your risk profile.
Who Should Invest in Good Long Term Mutual Funds?
Long term investors are those with goals spanning more than five years, such as purchasing a home or car, saving for retirement, funding a child’s education or marriage, or clearing debts. Long-term investment schemes are suited to those who understand and accept the risks associated with enduring market fluctuations for substantial returns. Whether opting for lump-sum or SIP investments, the latter aids in spreading the financial commitment over several years, averting cost volatility, and capitalizing on the power of compounding. Long-term mutual fund investors should exercise patience, trusting fund managers’ well-researched choices. Seeking advice from professionals is advisable for guidance on the top mutual funds for long-term investments in India.
Taxation on the Best Mutual Fund For Long Term
Equity mutual funds, once known for their tax efficiency, now face taxation based on the holding period. Investments held for over one year are considered long-term and subject to a 10% Long Term Capital Gains Tax (LTCG) on gains exceeding INR 1 Lakh, plus a 4% Cess. Dividend Distribution Tax (DDT) applies to equity funds, with dividends added to the investor’s taxable income, subject to their respective tax slabs. Additionally, a TDS of 10% is levied on dividends over INR 5,000.
Investments exited before one year incur a 15% Short Term Capital Gains Tax (STCG) plus a 4% Cess. When selling holdings, investors are also charged a 0.001% securities transaction tax. ELSS funds offer tax savings under Section 80C, while other tax-saving options include PPF, EPF, NPS, NSC, and SCSS, enabling savings of up to INR 1.5 lakhs.
Long-term investments in mutual funds, especially large-cap, mid-cap, and small-cap funds, are suitable for those with less time or knowledge for detailed securities research. However, such investments require periodic review and rebalancing, ideally once a year, to ensure alignment with financial goals and maintain a disciplined approach.
Risks of Investing in the Best Mutual Fund to Invest in Long Term
When considering long-term mutual funds for investment, it’s essential to evaluate the associated risks. Here’s an overview of potential challenges you should be mindful of:
- Market-Linked Risks: Long-term mutual funds, particularly those heavily invested in equities, are exposed to higher market-linked risks. The value of your investment can fluctuate significantly, influenced by the performance of the stocks within the fund. It’s crucial to have a good grasp of the stocks your chosen fund invests in.
- Return Uncertainty: Mutual funds don’t offer guaranteed high returns. For example, even if your fund experiences a loss in one year but performs exceptionally well the following year, the overall yield may not be as impressive when averaged over your investment period.
- Redemption at Current NAV: While you have the flexibility to withdraw from long-term mutual funds, the redemption amount is determined based on the prevailing Net Asset Value (NAV) of the entire fund. This means that if the fund faces losses, these losses will be proportionally reflected in your investment corpus.
Differences Between Long and Short Duration Mutual Funds
The following table demonstrates a comparative analysis between Short Duration Mutual Funds vs Long Duration Mutual funds:
| Aspects of Differences | Long Term Mutual Funds | Short Term Mutual Funds |
| Investment Horizon | Geared towards the long term, typically over several years. | Typically span from a few days to three years. |
| Risk Tolerance | Suited for investors willing to undertake some risk, especially in equities. | Ideal for low-risk investors who prefer to avoid equities. |
| Wealth Creation | Long-term investments are effective for wealth creation over time. | Suitable for shorter-term financial objectives. |
| Goals | Ideal for goals like retirement planning, purchasing a home, or funding children’s education. | Suitable for goals like vacations, vehicle purchases, or shorter-term financial milestones. |
| Investment Options | Focus on equity mutual funds, emphasizing higher market exposure. | Primarily involve debt mutual funds, often surpassing fixed deposits in post-tax returns. |
| Taxation | Subject to capital gains taxation at the investor’s IT slab rate from April 1, 2023. | Also subject to risks, including credit and interest rate risk, and do not guarantee returns. |
| Liquidity | Usually less liquid as they are designed for long-term commitment. | More liquid, with options like liquid funds serving as alternatives to savings accounts. |
Advantages of Investing in the Best Mutual Fund For Long Term
Investing in a long-term mutual fund scheme presents a host of benefits, each catering to specific financial needs and objectives:
- Strategic Financial Planning: Long term investments necessitate strategic financial planning. By addressing future financial goals well in advance, investors lay a solid foundation for stress-free life goal achievements. With a clear roadmap, financial preparedness ensures a seamless journey toward their aspirations, backed by tools such as SIP and lumpsum mutual fund calculators for return estimation.
- Harnessing the Power of Compounding: The long term investment horizon introduces the powerful concept of compounding, where earnings build upon prior gains. Over spans of 5, 10, or 30 years, compounding significantly multiplies returns, and systematic investment plans (SIPs) further amplify this effect.
- Steady Management of Market Volatility: Long term investments bring a nuanced approach to handling market volatility. Investors develop a deeper understanding of market dynamics and become less susceptible to short-term fluctuations. This leads to more stable and potentially higher returns over time.
- Lightening the Financial Load: Initiating investments early in life, particularly for substantial financial objectives like retirement, education, or marriage, eases the financial burden. Early investments leverage the power of compounding, reducing the rupee cost and enhancing the overall returns. Furthermore, they provide a more robust defense against the market’s short-term fluctuations.
To Wrap It Up…
In conclusion, long duration mutual funds offer an effective strategy for investors with specific financial goals and risk appetites. Their potential for higher returns, coupled with the power of compounding, makes them an attractive choice for those willing to commit for the long term. However, it’s crucial to align these funds with your financial objectives and carefully assess your risk tolerance. Whether you’re planning for retirement, your child’s education, or simply looking to harness the benefits of compounding, long-duration mutual funds can be a valuable addition to your investment portfolio. Remember, the key to success is a well thought out investment strategy that aligns with your financial aspirations.
FAQs
For long term investments, consider equity funds as they offer the potential for the best returns. Choosing a growth mutual fund option can help you achieve your long-term goals as your returns will grow through compounding over time.
You can realize long term capital gains on mutual funds by selling equity shares you’ve held for over a year. When your long-term gains exceed Rs 1 lakh, you must pay a 10% tax on them, without the benefit of indexation.
You can sell your mutual fund holdings anytime, but the consequences vary depending on the fund type. Some funds may impose an early redemption fee for selling before a specific holding period.
Long duration funds encompass a lengthy investment horizon, exposing them to the entire business cycle and higher risks associated with interest rate fluctuations during economic cycles.
Long Duration Funds delivered an average annual return of 3.76%, with 3 and 5-year annualized returns standing at 6.15% and 6.1%, respectively.
Here are the top long term mutual funds from our list:
1. Quant Infrastructure Fund
2. Kotak Infrastructure and Economic Reform Fund
3. SBI Contra Plan Fund
