The mutual fund industry has grown rapidly since the year 2016. Post demonetization of high-value notes, banks reduced their rate of interest on fixed deposits, which induced a large number of investors to move towards the mutual fund industry. As a seasoned investor, I have realized that mutual funds are relatively stable as compared to direct stocks and they have also given decent returns over the years. You must have often heard that mutual funds are the best bet for long-term investment. Let me tell you why.
To give you a simple example:
Imagine you are a cricketer, you can accumulate a substantial amount of runs if you play the sport for a considerable amount of time. Similarly, you can gain a sizeable amount of return, if you invest for a long duration.
Also, investing for the long term is a safer bet. Suppose the market faces a downfall. There’s indeed a chance that you will lose your money during that period. However, if you remain invested, the market may eventually recover and you will end up making a profit from your investment.
From the long-term perspective, you can create a portfolio of mutual funds using a top-down approach. First, arrive at an optimal asset allocation based on your risk tolerance. Then, select funds to match your risk-reward investment plan.
Now let’s look at the top 10 mutual funds you may consider for long-term investment:
1. L&T Emerging Businesses Fund
This small cap equity oriented mutual fund was launched in May 12, 2014. It has given a return of 26.97% since its launch.
Duration | Returns (Direct Mutual Funds) |
1 Year | 12.2% |
3 Year | 24.1% |
5 Years | NA |
Why should you go for this fund?
# Since its launch, the fund has consistently outperformed its benchmark S&P BSE
# The expense ratio of the fund is 1.46%
# You can start at a minimum SIP of Rs 500
Expense ratio means the percentage of fund assets used to cover expenses like administrative, management, advertising etc. The lower the expense ratio, the better. Currently, an average expense ratio for actively-managed mutual funds is between 0.5% and 2.0%.
2. Principal Emerging Bluechip Fund
This is a large & mid cap-oriented fund which was launched in November 2008. The fund has given a return since launch of 23.78%.
Duration | Returns (Direct Mutual Funds) |
1 Year | 14.1% |
3 Year | 19.1% |
5 Years | 33.1% |
Why should you opt for this fund?
# This is a 10-year old fund and hence it’s performance can be aptly judged
# The expense ratio of the fund is 1.3%
# It has consistently outperformed its benchmark NIFTY Large Midcap 250 TRI since its launch
# Minimum SIP required is just Rs 500
3. HDFC Small Cap Fund
Launched in April, 2008, this small cap equity-oriented mutual fund has given a return 21.53 % since its launch.
Duration | Returns (Direct Mutual Funds) |
1 Year | 24.1% |
3 Year | 22.3% |
5 Years | NA |
Why should you opt for this fund?
# Being a 10-year old fund, its performance can be judged better
# Since its launch, the fund has consistently outperformed its benchmark Nifty Free Float Small Cap 100
# The expense ratio of the fund is 0.49%
# You start with a minimum SIP of Rs 500
4. Mirae Asset Emerging Bluechip Fund
Launched in July 2010, this large & mid cap oriented mutual fund has given a return of 27.36%.
Duration | Returns (Direct Mutual Funds) |
1 Year | 13.9% |
3 Year | 21.0% |
5 Years | 36.4% |
Why should you opt for this fund?
# Since its launch, the fund has consistently outperformed its benchmark Nifty Free Float Midcap 100
# Being a 7-year old fund, it’s performance can be judged easily
# The expense ratio of the fund is 1.73%
# You can start with a minimum SIP of Rs 1000
5. Aditya Birla Sun Life Small Cap Fund
Launched in May 2007, this small cap equity oriented mutual fund has given a return of 21.85 %.
Duration | Returns (Direct Mutual Funds) |
1 Year | 6.4% |
3 Year | 18.5% |
5 Years | 29.9% |
Why should you opt for this fund?
# Being almost an 11-year old fund, its performance can be judged easily
# It has consistently outperformed its benchmark Nifty Free Float Midcap 100 since its launch
# The expense ratio of the fund is 1.27%
# You can start with a minimum SIP of Rs 1000
6. L&T Midcap Fund
It was launched in August 2004, and is a mid cap equity-oriented mutual fund. It has given a return of 24.82% since its launch.
Duration | Returns (Direct Mutual Funds) |
1 Year | 8.7% |
3 Year | 18.8% |
5 Years | 33.1% |
Why should you go opt for this fund?
# Its performance can be easily judged as the fund is nearly 13 years old
# Since its launch, it has consistently outperformed its benchmark Nifty Free Float Midcap 100
# The expense ratio of the fund is 1.53%
# You can start with a minimum SIP of Rs 500
7. SBI Small Cap Fund
Launched in September 2009, this small cap equity oriented mutual fund has given a return of 31.05% since its launch.
Duration | Returns (Direct Mutual Funds) |
1 Year | 22.4% |
3 Year | 22.6% |
5 Years | NA |
Why should you opt for this fund?
# As the fund is nearly 8 years old, the performance can be easily judged
# Since its launch, the fund has consistently outperformed its benchmark S&P BSE Small cap since its launch
# The expense ratio of the fund is 1.29%
# You can start with a minimum SIP of Rs1000
8. Sundaram Small Cap Fund
Launched in February 2005, this small cap equity-oriented mutual fund has given a return of 19.02 % since its launch.
Duration | Returns (Direct Mutual Funds) |
1 Year | -4.2% |
3 Year | 10.2% |
5 Years | 36.4% |
Why should you opt for this fund?
# The performance of this fund can be easily judged as its nearly 7 years old
# The fund has consistently outperformed its benchmark S&P BSE Small Cap since its launch
# The expense ratio of the fund is 1.64%
# You can start at a minimum SIP of Rs 250
9. Canara Robeco Emerging Equities
Launched in March 2005, this large & mid cap equity-oriented mutual fund has given a return of 26.49 % since its launch.
Duration | Returns (Direct Mutual Funds) |
1 Year | 16.6% |
3 Year | 20.1% |
5 Years | 37.0% |
Why should you opt for this fund?
# The fund is almost 12 years old, which makes it easy to judge the performance
# It has consistently outperformed its benchmark Nifty Free Float Midcap 100 since the launch
# The expense ratio of the fund is 0.8%
# You can start at a minimum SIP of Rs 1000
10. Aditya Birla Sun Life Pure Value Fund
Launched in March 2008, this is an equity value oriented mutual fund which has given a return of 20.61% since its launch.
Duration | Returns (Direct Mutual Funds) |
1 Year | 3.5% |
3 Year | 16.7% |
5 Years | 32.1% |
Why should you opt for this fund?
# As the fund is nearly 9 years old. You can judge it’s performance easily
# The fund has consistently outperformed its benchmark S&P BSE 200
# The expense ratio of the fund is 1.2%
# You can start with a minimum SIP of Rs 1000
You might have a question on how these funds have been shortlisted. It’s simple.
First, you need to look at the past performance of the fund. By past performance, I am not only referring to the returns of the fund, but also the volatility factor.
Let’s imagine that you want to invest in a fund for 5 years and you (obviously) want decent returns from your investment.
You are considering 2 funds, let’s call them Fund ‘A’ and Fund ‘B’. The performance of both these funds are as follows.
Fund A | Fund B | |
Year 1 | -5% | 10% |
Year 2 | 24% | 17% |
Year 3 | 30% | 26% |
Since you know the returns of both these funds, which one would you choose?
If you are thinking about investing in Fund ‘A’, it could be a risky move. Why? Because Fund ‘A’ is extremely volatile. This might have adverse effects on your investments. Whereas, Fund ‘B’ is consistent in nature and not as volatile.
The next aspect is the expense ratio. For those of you who aren’t aware, expense ratio is an amount which is deducted from your returns as the management fee, for the AMC. Now, the expense ratio might seem like a small amount. But suppose you are investing for a long period of time, this amount can accumulate to become a sizeable chunk.
There are various other factors that may be mentioned in a fund’s catalog. However, not all of them would make a big difference. Like top holdings. Let’s say you want to invest in Tata Steel stocks. It would make no sense if you specially pick out a fund which invests in that stock and then put your money in that fund. You might end up making at a loss by doing so.
Look at the entire portfolio of the fund and then take an informed decision, which syncs with your investment goals.
This brings me to a very important point. Risk appetite. If you are investing for the long haul, you can afford to take a higher risk. But it is always better to check a fund’s risk potential and make sure that it matches yours.
Now that you know the various points to be considered before investing, there is another very important one. The method of investing you choose.
If you want to go for long-term investment, always opt for the Systematic Investment Plan or SIP. Because this way you are not only investing regularly, but also imparting financial discipline to your financial life.
Having said that, review your investment from time to time, but not too often. Once in a few weeks is good enough. And make sure to choose a fund house that has an experienced fund manager.
(By Harsh Jain, Co-founder & COO, Groww.in)
*Disclaimer – The mutual fund returns are as of 28th August 2018. All the returns mentioned are of direct plans of the respective mutual fund. Mutual funds’ performance is subject to market risks. Consult your advisor before investing in any fund.