Building Wealth with Long-Term Mutual Funds in India: A Complete Investment Guide

7 Nov 2024 , 02:34 PM

Long-term mutual funds offer a strategic way for investors to build wealth over time. These funds suit individuals looking to invest for a period exceeding five years. The best mutual fund for long term offers opportunities for capital appreciation by investing in a diversified portfolio of assets. In India, several mutual funds cater to long-term investors, providing growth and stability through various market cycles.

In this blog, we will explore the best mutual fund for long term, how they differ from short-term funds, and how you can invest in them through various platforms.

What is the Difference between Long Duration Mutual Funds and Short Duration Mutual Funds?

The primary difference between the best mutual fund to invest for long term and short-duration funds lies in the time horizon for investments and the types of securities they hold.

Factors	Long Term Mutual Fund	Short Term Mutual Fund
Investment Horizon	Long-term mutual funds typically require an investment horizon of five years or more. These funds are ideal for investors aiming to achieve long-term financial goals like retirement or buying a home.	Short-term mutual funds usually focus on a shorter investment period, ranging from a few months to three years. They cater to those seeking stable returns with minimal risk exposure in the short term.
Asset Allocation	Long-duration mutual funds often invest in equities and other growth-oriented securities, making them more volatile but with the potential for higher returns.	Short-duration funds mainly invest in debt instruments or money market instruments. These funds offer safer and more stable returns, albeit at a lower rate than equity funds.
Risk Factor	Long-term funds expose investors to market fluctuations, which could lead to temporary losses, especially in the early stages. However, the long time horizon allows for potential recovery and capital appreciation.	Short-duration funds carry lower risks due to their focus on fixed-income securities but offer limited growth potential.

 

When Should I Invest in Long Term Mutual Funds?

You should consider investing in long-duration mutual funds when you have a clear, long-term financial goal. The best mutual fund for long term are ideal under the following circumstances:

Retirement Planning

If you want to build a substantial retirement corpus, long-duration mutual funds offer the potential for wealth accumulation over decades. Equity-based long-term funds can help achieve this through compounded growth.

Funding Major Life Goals

If you plan to buy a home, finance your children’s education, or save for a big event, long-duration funds offer the opportunity to significantly grow your wealth over time.

Risk Appetite

If you are comfortable with short-term market fluctuations and are willing to hold your investments for the long haul, long-term mutual funds can reward you with higher returns. Over time, these funds can outperform other investment options due to their exposure to equities and market growth.

Economic Outlook

Investing in long-term mutual funds can be beneficial when the economy shows strong growth prospects. These funds benefit from economic expansion, as companies tend to thrive, and equity markets perform well over time.

Who Issues Long Duration Mutual Funds?

Several Asset Management Companies (AMCs) issues long-duration mutual funds in India. AMCs pool money from individual investors and allocate it to various financial instruments, including stocks, bonds, and other securities. Some of the best mutual fund to invest for long term in India include:

HDFC Mutual Fund

Known for its diversified offerings, HDFC Mutual Fund provides a range of long-duration mutual funds focusing on growth and income generation.

SBI Mutual Fund

SBI is one of the best mutual funds to invest in India for long term. It offers long-duration schemes that cater to both aggressive and conservative investors.

ICICI Prudential Mutual Fund

ICICI Prudential is renowned for its equity-heavy mutual funds that aim at long-term capital appreciation.

Nippon India Mutual Fund

Nippon India offers mutual funds for high growth that are suitable for long-term wealth creation.

Axis Mutual Fund

Axis Mutual Fund specializes in long-term mutual funds, particularly those investing in blue-chip companies with a stable growth history.

What Does Investing in Long Duration Mutual Funds Mean?

Investing in the best mutual fund for long term means committing your money for an extended period, typically five years or more, to achieve capital growth. Here’s what it entails:

• Exposure to Equity Markets: The best mutual fund to invest for long term invest heavily in equities. This allows investors to benefit from market upswings, though it also introduces some volatility.
• Compounded Returns: The power of compounding plays a significant role in long-term investments. As your returns are reinvested, your wealth grows exponentially over time.
• Riding Market Cycles: The best mutual fund to invest for long term allows investors to weather different market cycles. Though markets may fluctuate in the short term, long-term investments usually smooth out volatility, delivering substantial returns over time.
• Tax Benefits: In India, long-term capital gains (LTCG) tax on equity funds is comparatively lower. Investments held for over a year attract a 10% LTCG tax on gains exceeding ₹1 lakh.

The Best Mutual Fund Schemes

Here, we’ll look into the best mutual fund for long termfund schemes.

Mutual Fund	Fund Performance	Minimum Investment Amount
Motilal Oswal Midcap Fund Direct Growth	In the last three years, the Motilal Oswal Midcap Fund has generated 38.73% annualized returns; in the previous five years, it has produced 36.13%. Within the Motilal Oswal Mutual Funds Equity category is the Motilal Oswal Midcap Fund. This makes Motilal Oswal Midcap Fund one of the best mutual funds to invest in India for long term.	A lump sum or SIP investment in the Motilal Oswal Midcap Fund requires a minimum of ₹500.
Quant Tax Plan Direct Growth	Over the last three years, the Quant Tax Plan Fund has generated 34.96% annualized returns; in the previous five years, it has produced 30.25%. Within the Quant Mutual Funds category, the Equity section includes the Quant Tax Plan Fund.	A lump sum or SIP investment in the Quant Tax Plan Fund requires a minimum of ₹500.
Quant Small Cap Fund Direct Plan Growth	Over the last three years, the Quant Small Cap Fund has generated 34.01% annualized returns; in the previous five years, it has produced 51.67%. The Quant Small Cap Fund is a member of the Quant Mutual Funds Equity category.	The minimum necessary investment amount for the Quant Small Cap Fund is ₹1,000 if made via SIP and ₹5,000 if made in lump money.
Invesco India Infrastructure Fund Direct Growth	Over the last three years, the Invesco India Infrastructure Fund has generated 33.52% annualized returns; in the previous five years, it has generated 35.71%. Within the Invesco Mutual Funds Equity category is the Invesco India Infrastructure Fund.	To invest in the Invesco India Infrastructure Fund, a lump investment of ₹1,000 is needed, and a SIP of ₹500 is required.
Kotak Infrastructure and Economic Reform Fund Direct Growth	Over the last three years, the Kotak Infrastructure and Economic Reform Fund has been one of the best mutual funds to invest in India for long term. It has generated 33.41% annualized returns, and over the last five years, it has produced 32.75%. Within the Kotak Mahindra Mutual Funds Equity category is the Kotak Infrastructure and Economic Reform Fund.	To invest in the Kotak Infrastructure and Economic Reform Fund, you must have at least ₹100 lump sum or SIP.
Nippon India Small Cap Fund Direct Growth	Over the last three years, the Nippon India Small Cap Fund has generated 33.16% annualized returns; in the previous five years, it has produced 40.28%. Nippon India Mutual Funds’ Equity category includes the Nippon India Small Cap Fund.	The Nippon India Small Cap Fund requires a minimum investment of ₹5,000 for lump sum investments and ₹100 for systematic investment plans.
Quant Mid Cap Fund Direct Growth	The last three years’ annualized returns from the Quant Mid Cap Fund were 31.69%, and the previous five years’ returns were 39.57%. The Quant Mid Cap Fund is a Quant Mutual Fund that falls under the Equity sector.	A lump sum investment of ₹5,000 or a systematic investment plan (SIP) of ₹1,000 is needed to invest in Quant Mid Cap Fund.

 

How to Invest in Long Duration Mutual Funds on Platforms?

Find a user-friendly platform that allows investors to invest in long-duration mutual funds easily. Follow these steps to invest in long-duration mutual funds:

• Create an Account: Sign up on the platform by providing basic information such as your name, email, and PAN number. Complete the KYC process for verification.
• Explore Mutual Funds: Browse through the available long-duration mutual funds. You can use filters such as investment horizon, fund type, and risk level to narrow down your choices.
• Select a Fund: After thorough research, select a mutual fund that aligns with your long-term financial goals.
• Invest Your Funds: You can make a lump sum investment or choose the Systematic Investment Plan (SIP) route for steady, periodic investments.
• Track Performance: Once you invest, monitor the performance of your mutual funds regularly. The platforms provide tools and data to help you stay updated on your investments’ performance.

Conclusion

The best mutual fund for long term offers a solid investment opportunity for individuals looking to build wealth over time. These funds suit long-term financial goals and provide the potential for high returns due to their exposure to equities and other growth-oriented assets. While these funds carry some market risk, the long-term investment horizon helps mitigate short-term volatility.

With several options available in India, investors can choose from top-performing long-duration mutual funds by evaluating factors like fund performance, management expertise, and risk tolerance. Various authentic platforms simplify the process, making it easy for investors to identify, invest, and track their mutual fund investments.

FAQs

Do mutual funds make wise investments over the long term? 

Mutual funds with long maturities benefit investors who want to accumulate wealth gradually. Long-term mutual funds use compounding, the process of reinvesting profits that cause an investment to grow exponentially over time.

Which mutual fund class is ideal for long-term investing? 

The most popular option for long-term investors is typically equity funds. At least 65% of the assets of equity funds, such as large-cap, mid-cap, small-cap, value, multi-cap, and Equity Linked Savings Schemes (ELSS Funds), are allocated to stocks or company shares.

Is long-term investing safe? 

When investors try to time the market, longer-term stock transactions typically do better than shorter-term trades. Investor returns are usually hampered by emotional trading. For most 20-year periods, investors saw positive returns from the S&P 500.

Is trading superior to long-term investing? 

If you have a long-term goal, investing is always preferable to trading because trading requires constant monitoring and takes time; it can also go wrong. However, you should prefer if you have a good long-term view, say five to ten years.

What is the mutual fund regulation? 

For mutual funds, the 20/25 rule is a quick and easy method to diversify your holdings and lower your risk. It recommends investing in a maximum of 20 mutual funds and allocating no more than 25% of your portfolio to any one fund.