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Best Mutual Funds for Long Term Investment

Updated on November 26, 2020 , 4047 views

A long term Investment plan makes a lot of significance in your portfolio. It is essential for a long-term wealth creation. When you plan for higher goals in life, like for instance, retirement, marriage, child’s education, purchase of a house, or a world tour, etc., long-term Mutual Fund schemes can help in fulfilling all of these. So, let’s know more about long-term investments, who & how should one plan to achieve their long-term goals and the best mutual funds to invest for long-term plan.

What is a Long Term Investment?

Generally, long-term plans come with an investment time frame of greater than 5 years. When a person wants to invest for a long-term there are a lot of objectives behind the investment. The aim could be for a long-term wealth creation, so that the person could feel secure in the future. It can be of achieving major goals in life or could be just to double the money by earning good returns on investment. The most advised plan for the long-term is the equity Mutual Fund.


Why Equity Funds are Best for Long Term?

Equity Funds majorly invest in stocks/shares of companies. It is also one of the best ways to own a business (in a small portion) without you starting a business. But, these funds are highly risky in the short-run. Equity markets are sensitive to macroeconomic indicators and other factors such as Inflation, interest rates, currency exchange rates, tax rates, bank policies to name a few. Any change or imbalance in these affect the performance of the companies and hence the stock prices. That’s why it is always suggested to stay invested in equity funds for minimum 5 years to max 10 years & above. Also, these funds are only recommended for investors who are willing to take a high level of risk in the investment.

Historically, equity funds have proven to deliver good returns in the long-run. The majority of blue chips companies helps investors earn a steady income in the form of dividends. Such companies usually pay out regular dividends even in volatile market conditions. These are typically paid quarterly. Having a diversified portfolio can provide investors with a steady dividend income in the year.

When planning to invest for a long-term, investors can invest in stocks of different economic sectors. So, even if a particular stock drops in value, the others may help investors make up for that loss. Some of the other benefits of equities are:

  • Low cost
  • Flexibility
  • Diversification
  • Convenience
  • liquidity
  • Expert money management

Best Mutual Funds to Invest for Long term

Following are the Best equity funds for long-term investment plans.

Large Cap Funds

These funds invest money in the stocks of large-sized companies. Large cap stocks are commonly referred as blue chip stocks. These funds invest in those firms that have potential to show year on year steady growth and high profits, which in turns also offers stability over a time. Large-cap stocks give steady returns over a long period of time. As these funds invest in well-established companies they are usually considered to be the safest investments compared to mid & Small cap funds. Investors with a moderate to high-risk appetite can prefer Investing in large-cap funds.

FundNAVNet Assets (Cr)Min SIP Investment3 MO (%)6 MO (%)1 YR (%)3 YR (%)5 YR (%)2019 (%)Sharpe Ratio
Axis Bluechip Fund Growth ₹35.43
₹18,283 500 12.933.211.712.813.318.6-0.02
Canara Robeco Bluechip Equity Fund Growth ₹31.01
↑ 0.03
₹922 1,000 1134.615.311.612.815.70.18
Edelweiss Large Cap Fund Growth ₹40.9
↓ -0.06
₹193 500 10.837.78.87.910.711.50.02
BNP Paribas Large Cap Fund Growth ₹105.58
↓ -0.22
₹900 300 10.531.
Kotak Bluechip Fund Growth ₹274.28
↑ 0.73
₹1,740 100 11.738.
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 27 Nov 20
Note: Ratio's shown as on 31 Oct 20

Mid & Small Cap Funds

These are the funds that invest in the stocks of mid-sized and small/start-up companies, respectively. Mid cap & small cap funds have gained a huge attention in the past few years. Their potential for fast business growth has caught the eyes of many investors. Such companies are flexible in adapting changes than the larger companies, hence they can show rapid growth. But, these funds are risker than Large cap funds. If mid & small cap companies are unable to deliver exceptional returns in a bull market phase than they may suffer badly. Hence, investors with a high-risk appetite should only prefer investing in these funds.

FundNAVNet Assets (Cr)Min SIP Investment3 MO (%)6 MO (%)1 YR (%)3 YR (%)5 YR (%)2019 (%)Sharpe Ratio
SBI Small Cap Fund Growth ₹66.9168
↑ 1.53
₹5,424 500 12.256.2254.815.56.10.31
Axis Mid Cap Fund Growth ₹47.67
↑ 0.88
₹6,949 500 12.637.121.21313.711.30.25
DSP BlackRock Midcap Fund Growth ₹69.031
↑ 1.45
₹8,407 500 11.54122.57.313.29.20.3
Kotak Emerging Equity Scheme Growth ₹47.172
↑ 1.10
₹7,668 1,000 13.948.118.35.312.38.90.22
Kotak Small Cap Fund Growth ₹92.369
↑ 2.40
₹1,855 1,000 16.766.728.7511.650.42
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 27 Nov 20
Note: Ratio's shown as on 31 Oct 20

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Diversified Funds or Multi Cap Funds

These funds invest across all the market caps— large, mid & small cap funds. They typically invest anywhere between 40-60% in large cap stocks, 10-40% in mid-cap stocks and about 10% in small-cap stocks. Since these funds are a combination of all the caps, they master in balancing the portfolio. Historically, Diversified Funds have come as a winner in the most market conditions. Due to its diversified nature, these funds have the potential to survive the tough market phase. Investors with a moderate to high level of risk appetite can ideally invest in these funds.

FundNAVNet Assets (Cr)Min SIP Investment3 MO (%)6 MO (%)1 YR (%)3 YR (%)5 YR (%)2019 (%)Sharpe Ratio
Parag Parikh Long Term Equity Fund Growth ₹33.8345
↑ 0.18
₹5,008 1,000 6.636.727.513.914.214.40.57
UTI Equity Fund Growth ₹183.738
↑ 1.68
₹11,917 500 16.948.622.713.112.911.70.32
Canara Robeco Equity Diversified Growth ₹162.88
↑ 0.70
₹2,461 1,000 10.935.516.110.111.812.30.2
PGIM India Diversified Equity Fund Growth ₹17.55
↑ 0.15
₹316 100 13.346.927.59.511.6100.4
DSP BlackRock Equity Fund Growth ₹47.59
↑ 0.34
₹3,819 500 12.538.212.47.711.817-0.01
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 27 Nov 20
Note: Ratio's shown as on 31 Oct 20

Sector Funds

These are the riskiest of all the equity funds. Thus, an investor who has an ability to take a high risk in the investment should only prefer investing in sector funds. These funds are sector-specific. They invest in a particular sector like infra, pharma, banking, finance, etc. An investor who thinks a particular sector can make a high growth or has a potential to generate good returns in the near future can prefer investing in these funds.

FundNAVNet Assets (Cr)Min SIP Investment3 MO (%)6 MO (%)1 YR (%)3 YR (%)5 YR (%)2019 (%)Sharpe Ratio
UTI Healthcare Fund Growth ₹133.512
↑ 1.62
₹586 500 6.432.65715.
Nippon India Pharma Fund Growth ₹237.658
↑ 2.41
₹3,900 100 731.15620.
ICICI Prudential Technology Fund Growth ₹87.82
↑ 0.68
₹832 100 19.470.655.92516.42.31.11
SBI Healthcare Opportunities Fund Growth ₹184.98
↑ 1.56
₹1,445 500
TATA India Pharma & Healthcare Fund Growth ₹14.1168
↑ 0.16
₹354 500 7.530.15017.6 5.51.46
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 27 Nov 20
Note: Ratio's shown as on 31 Oct 20

Taxation in Long Term Mutual Funds

Referring to the above equity funds, the taxation implication are as follows:

Equity Schemes Holding Period Tax Rate
Long Term Capital Gains (LTCG) More than 1 Year 10% (with no indexation)*****
Short Term Capital Gains (STCG) Less than or equal to a year 15%
Tax on Distributed Dividend - 10%#

Gains up to INR 1 lakh are free of tax. Tax at 10% applies to gains above INR 1 lakh. Earlier rate was 0% cost calculated as closing price on Jan 31, 2018. #Dividend tax of 10% + Surcharge 12% + Cess 4% =11.648% Health & Education Cess of 4% introduced. Earlier, education Cess was 3*%

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All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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Ganesan, posted on 23 Sep 20 10:51 AM

Very useful

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