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  • Best Long Term Mutual Funds

Best Mutual Funds for Long Term

Long term investments help investors in wealth creation. The best-suited investment option for the long term is the Equity Mutual Fund. Invest in algorithmically and scientifically recommended long term mutual funds with customizable investment plans.

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Best Long Term Mutual Funds to Invest in 2024

Fund Name3Y ReturnsExpense Ratio
Nippon India Nivesh Lakshya Fund (G)
Nippon India Nivesh Lakshya Fund (G)
ICICI Prudential Long Term Bond Fund (G)
ICICI Prudential Long Term Bond Fund (G)
HDFC Long Duration Debt Fund (G)
HDFC Long Duration Debt Fund (G)
Aditya Birla Sun Life Long Duration Fund (G)
Aditya Birla Sun Life Long Duration Fund (G)
Axis Long Duration Fund (G)
Axis Long Duration Fund (G)
SBI Long Duration Fund (G)
SBI Long Duration Fund (G)

Note : *NA implies that Fund is relatively new. Not enough data available

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Long-term mutual funds are suitable for investors who wish to invest for a longer investment horizon of beyond 5 years and undertake certain risks. Your long term investment goal must be satisfied by the type of equity mutual fund for a successful investment. While selecting the best long term mutual funds you need to consider the fund’s historical performance, returns, NAV, AUM, funds manager’s portfolio, and tax. These factors along with your investment goal will help you make a well-thought-out investment.

Top 10 Long-Term Mutual Funds to Invest in 2024

Fund NameCategory3 Year Returns
Axis Bluechip FundLarge-Cap Equity23.50%
Mirae Asset Large Cap FundLarge-Cap Equity 22.30%
Parag Parikh Flexi Cap fundDiversified 31.40%
Invesco India Growth Opportunities FundDiversified 19.9%
Nippon India Growth FundMid-Cap Equity25.90%
Mahindra Manulife Multi Cap Badhat YojanaDiversified29.70%
Mirae Asset Tax Saver FundEquity Linked Saving Scheme26.60%
Canara Robeco Equity Taxsaver fundEquity Linked Saving Scheme26.90%
UTI Nifty Index FundIndex Mutual Fund Growth20.70%
HDFC Index Nifty 50 fundIndex Mutual Fund Growth20.40%

What is a Long Term Investment?

Investments are broadly classified as short term investments and long term investments. Short term investments are usually made for a period ranging between a few days to three years. The motive behind short term investments is to earn better returns than by holding the money in a savings bank account. Also, to meet short term goals like purchasing a vehicle, going on a vacation, etc. While investments are considered long term investments when the holding period is more than five years.

Long term investments help the investors in wealth creation. Investors may have different objectives for long term investing. Major goals such as buying a house, peaceful retirement, child’s education and wealth creation can be easily achieved with long term investment. The best suited investment option for long term is finding best Equity Mutual Funds.

Equity Mutual Funds for Long term Investing

Equity Mutual funds invest in shares or stocks. These mutual funds are subject to market risk. In other words, equity mutual funds are sensitive to inflation, tax rates, interest rates, bank policies, exchange rates, etc.

Any change in these factors has an impact of the share price of the stocks invested. However, they offer significant returns when invested for long term. Mutual Funds investment in equity can be done through SIP route or lump sum route. SIP investments help in averaging out risk in the long term and earn good returns. Mutual funds investment can be done through direct plan or regular plan. Through a direct mutual fund , investors can invest with the fund house without any intermediary. However, direct mutual fund investors have to manage their own mutual funds investment with each and every fund house.

Therefore, equity funds such as large cap funds, midcap funds, small cap mutual funds, value funds, index funds, multi cap funds, Equity Linked Savings Scheme (ELSS Fund), and aggressive hybrid funds are best suited for investors who are willing to undertake certain risk and stay invested for longer durations. Index funds are passively managed funds while the rest of the funds are actively managed funds. Aggressive hybrid fund is a type of hybrid fund (balanced fund) which invests the majority of its assets in equity and hence is treated like equity mutual funds.

Additionally, all long term investments should be made to achieve a goal. Financial goal based investing will help realise them easily. Small and regular investments made for long term help achieve the goals without much financial burden.

Why are Equity Funds in India considered best for long term investment?

Equity funds such as large caps, midcap funds, small cap mutual funds, value funds, multi cap funds and Equity Linked Savings Scheme (ELSS Fund) invest at least 65% of their assets in equities or companies. It is one of the best ways for small investors to own shares of multiple companies. However, there are risks attached to such ownership.

In the short-term, share prices fluctuate due to market demand and supply, company’s performance, corporate actions or government and economic policies. In the long term, the companies grow and stabilize. The companies would’ve had enough time to grow their business and earnings. The companies pass on these benefits to the investors in the long term. In the short term, if there are any benefits, the company would want to retain most of it in the business for growing it.

Equity markets are highly sensitive. The market might peak or fall down in one single day. Traders might take advantage of situations like these to make money. But equity mutual fund investors aren’t really in a position to do anything. Firstly because the fund manager takes all portfolio decisions. Secondly, because the investors lack knowledge. All they can do is redeem their investment to save their money from further losses.

But equity funds come with an investment horizon attached to it. There’s no hard and fast rule that investors must stay invested for a particular time. However, while investing in equities investors should aim for the long term. Throughout their investment journey they have to be patient enough and ignore short term fluctuations in the market. All their patience is paid off by significant market beating returns in the long term. It’s always recommended to take professional advice on what are the best mutual funds to invest in for the long term.

Benefits of investing in a long term mutual fund scheme

Investing in a long term mutual fund scheme has many advantages. It helps one plan their finances well. Power of compounding works its magic in the long term and gives significant market-beating returns from long term investments. The investment burden is spread out over many years.

1. Financial Preparedness

Investing for the long term implies planning out the future financial goals well in advance. The investors have to plan now for the goals that they want to achieve in 5 or 10 or even 30 years down the line. Once they are clear about their goals, they have to invest towards achieving them. By doing so, they are being financially prepared for the future. They can live a stress free life and achieve all their life goals without any hiccup. One can use SIP calculator and lumpsum mutual fund calculator to find out the returns from their investment.

2. Power of compounding

Long term investing comes with an inbuilt benefit of compounding. Compounding and long term do magic to one’s investment. Compounding, simply put, is interest on interest. With horizons of 5, 10, 30 years, investment growth is boosted due to compounding. SIP investing further boosts compounding.

Most long term financial goals become easier and achievable because of the power of compounding. One can always use the SIP calculator and power of compounding calculator to find out the potential return on their investment.

3. Managing volatility

Market fluctuations are different in the long and short term. Markets are volatile in the short term, they fluctuate heavily and returns are often erratic. In the long term, investors understand the market better and are less affected by short term volatility . Hence the potential to realise higher returns. Investing for the long term provides greater stability than investing in equity for the short term.

4. Low burden

Financial goals like retirement, child’s education and marriage are a costly affair. Investing for achieving them from an early age is beneficial. This is because it not only reduces the investment burden but also increases the returns through compounding. Investing regularly and early also reduces the rupee cost of investment. Thus increasing the final growth. Also, the volatility will be better managed and investments will not be affected too much by short term fluctuations in the market.

Who should invest in mutual funds for the long term?

Any investor having goals which need more than 5 years, is considered as a long term investor. Few examples of long term goals are

  • Buying a home or car 
  • Saving up for retirement 
  • Investing for child’s education and marriage 
  • Clearing loans

Long term investment schemes are for those investors who understand the risk of investing for the long term. An investor who is worried about short term market fluctuations, or short term losses should stay away from long term equity fund investments. Long term investments suit those investors who understand and accept the risk involved in long term equity fund investments for earning significant returns. Both lumpsum and SIP investors can invest for long term. However, investing through SIP helps in reducing the burden of investing by spreading out the investment over a few years. 

SIP investing also averages out the cost of investment and maximizes returns through power of compounding. Investors planning to invest for the long term in mutual funds should be very patient. They need not worry about small fluctuations in the market. The fund manager has invested only after a thorough research. Taking advice from a professional is always better. They can provide guidance on the India top mutual funds to invest for the long term.

What is the difference between long term and short term investment?

Investments help in wealth creation. Equity mutual funds do well in the long term. Investors willing to undertake some risk can invest in equity mutual funds. Long term investments require patience and panic selling will only result in a loss. Long term investments best suit goals such as retirement, buying a home, and children’s education, etc.

Short term investments are usually for a period ranging between a few days to three years. Liquid funds, Ultra short term debt funds, short term debt mutual funds long term debt mutual funds, bond funds are some of the short term investment options.

Short term investments are best made via debt mutual funds, which are in turn,  better than fixed deposit. The post tax returns from debt mutual funds can be higher than FD rates (fixed deposit). However, from April 1st 2023, capital gains from debt funds will be taxed as per the investor’s IT slab rate.

However, there are long term investment options in debt funds. Gilt fund, dynamic bond fund, and long duration fund are some of them. Gilt funds invest in government securities and are considered safe for investment but are exposed to interest rate risk. Dynamic bond fund is a type of hybrid fund (balanced fund) which invests in both equity and debt and changes its asset allocation based on market situations. Bond funds can be corporate bond funds or government bond funds. 

Short term debt mutual funds too like equity mutual funds are subject to risks such as credit risk and interest rate risk, and hence do not guarantee returns. Short term investment best suits goals such as going for a vacation, buying a two wheeler or four wheeler, etc.

Liquid funds are the most popular alternatives to savings account due to their high liquidity. This type of debt fund is mostly preferred to park money over the weekend by companies.

Long term and short term investments in mutual funds are suitable for different types of investors. Long term funds are best suited for investors who are willing to take some risk and stay invested for longer durations. While short term funds are suitable for low risk investors who do not want exposure to equities.

Difference between Long and Short term investments

Particulars Long Term InvestmentsShort Term Investments
DurationMore than five yearsUp to three years
RiskHigh risk when compared to short term investmentsLow risk when compared to long term investments
ReturnsHigh returns, benefit of power of compounding.High returns when compared to traditional savings schemes
Interest RateHighly sensitive to interest rate cutsLess sensitive to interest rate cuts
GoalsSuitable for long terms goals such as retirement, child’s education, etc.Suitable for short term goals such as vacations, buying a car, etc.

How are long term investments in Equity Funds taxed?

Equity mutual funds were one of the most tax-efficient investments before the introduction of LTCG tax. Now they are taxed based on their investment holding period. For the purpose of taxation, the investment holding period beyond one year is considered as long term investment. Long term investments in Equity funds are taxed at 10% (plus 4% Cess). However, 10% Long Term Capital Gains Tax (LTCG) is only on the capital gains above INR 1 Lakh.

Additionally, equity mutual funds also attract Dividend Distribution Tax (DDT). Dividends are taxed in the hand of the investors. The dividend received is added to the taxable income of the investor. And based on the tax slab the investor is taxed. Also, dividends over INR 5,000 a TDS of 10% is cut.

However, investments exited before one year, attract Short Term Capital Gains Tax (STCG). They are taxed at 15% (plus 4% Cess).

Also, a securities transaction tax of 0.001% is charged when investors sell their holdings.

ELSS fund is the only type of equity fund that qualifies for tax savings under Section 80C of the Income Tax Act. However, other top tax-saving investments are PPF, EPF, NPS, NSC and SCSS, etc. One can save tax on investment up to INR 1.5 lakhs. Instead of keeping the money idle in saving account, one can invest in any of the above investments to save tax.

The best long term investments for investors who do not have the time or knowledge to research securities in detail are mutual funds. Pure large cap funds, mid cap funds and small cap funds should be held for a longer investment horizon than any other equity funds. Investing for the long term can have multiple benefits. However, long term investing comes with some homework to do in the form of efforts the investor has to put in to monitor the portfolio.

Investing in any avenue for the long term needs to be revisited at regular intervals. For mutual funds, ideally one has to monitor their portfolio once every year. Investing for long term goals alone doesn’t help in achieving them. The investments have to be reviewed and rebalanced if necessary. 

If investors find any deviation from their goals, the portfolio needs adjustments to keep it back on track. This also requires a lot of patience, time and knowledge to do so.