Mutual funds have become synonymous with the word investments and are part of every investment portfolio. The dynamic nature of mutual fund investments and the various types of options available make it suitable for every investor class. These multiple mutual funds can be broadly classified under various categories and the investment horizon in each type of category is based on factors like the investor’s profile, the gestation period of the fund as well as the average return provided by the fund.
The long-term investment strategy is one of the most favoured strategies in mutual funds. Discussed below is the basic meaning of long-term investing and the ideal mutual fund categories for the same.
The concept of long-term investing is not new in the country. With many traditional investment options like Bank FDs, PPFs, etc., we are used to waiting a few years to get good returns. Under mutual funds too, there are many investment categories that focus on long-term investment horizons to ensure maximum wealth creation for investors. The usual investment horizon under long-term investing is approximately 5 years to 7 years and above. However, the idea of a long-term investment horizon is relative to the type of investor. If the investor is aggressive in nature, an investment horizon of 3 years or more can be long-term for such inverse while for a conservative investor, a long-term investment horizon could also mean 5 years to 10 years or more.
For long-term investing, the most preferred choice of investment is equity funds. Equity funds are funds that invest predominantly in equity and equity-related instruments (minimum of 65% of the fund). These funds although highly volatile, provide the maximum opportunity of achieving higher returns and are ideal for aggressive investors with a higher risk appetite.
Some of the key advantages of long-term investing are highlighted below.
Mutual funds are a dynamic investment option and one of its key features is the benefit of compounding which increases the returns for the investors as compared to many other traditional investment options. This benefit is further enhanced with the increase in the duration of investment as the returns get more years to be multiplied.
Equity funds are highly volatile and react the most to market fluctuations. However, it is always observed that the markets may face a slump in the short-term, in the long-term, the equity markets have always increased and provided better returns than other funds like debt funds. Therefore, having funds with a long-term investment horizon reduces the risk of market volatility while at the same time providing higher returns.
Investing in long-term funds, allows the investors to get maximum time to build their corpus. Therefore investing in long-term investments is ideal for financial planning or meeting the long-term goals like retirement, children’s higher education, wedding expenses, etc. Gradually building their corpus over a long-term investment horizon will not even put a financial burden on them of meeting the expenses in one shot or at a short notice.
One of the main features of investing in mutual funds is investing through SIPs. This allows the investors to invest smaller amounts consistently over the investment horizon of the fund. This benefit of gradually adding to the investment not only increases the benefit of compounding but also reduces the rupee cost of investment in the long term. This reduction in costs is further translated into higher net returns which further help in wealth creation.
The most commonly preferred mutual fund categories for long-term investing are mentioned below.
Large-cap funds are the funds that invest heavily in stocks of large-cap companies (minimum 80% of the fund). Large-cap companies for this context are the companies that rank between 1 to 100 in terms of market capitalization on the recognized stock exchange. These companies are also known as blue-chip companies and are market leaders in their segments or industries. Investors of these funds usually have the buy and hold strategy and look for opportunities where they can buy their target stock from this category at lower rates. This will help them reduce their overall cost of investment thus adding to their returns.
Mid-cap funds are funds that invest in stocks of mid-cap companies (minimum of 65% of the fund). These companies rank between 101 to 250 in terms of market capitalization on any stock exchange. These companies are emerging market leaders that have a good product or a sound business plan and the potential to generate higher returns than large-cap companies. The risk of the fund however is also higher than that of the large-cap funds. The usual investment horizon of these funds is approximately 5 years and more which allows the fund to generate decent returns for the investors and help them in achieving their goals.
Small-cap funds are funds that invest primarily in stocks of small-cap companies (minimum 65% of the fund). These companies rank 251 and above in terms of market capitalization on a stock exchange. The funds are considered to have the highest risk as compared to mid-cap and large-cap funds along with the potential to provide the maximum returns. Liquidity is often seen as an issue in these funds but an investment horizon of a minimum of more than 10 years allows the investors to gain the maximum advantage of their investment as well as avoid short-term liquidity issues.
Flexi-cap funds belong to the dynamic group of mutual funds where there are no set guidelines of minimum investment ratio as per SEBI. these funds unlike multi-cap funds can invest in any ratio among the large-cap, mid-cap, and small-cap companies based on their investment strategy and market trends. This allows the fund manager to apply their expertise and choose equities that meet the objective of providing a maximum advantage to the investors while at the same time managing the overall risks and contributing to the wealth creation objective of the funds. These are high-risk funds suitable for aggressive investors having a minimum investment horizon of 5 years and more.
After learning about the various categories of funds, let us now have an overview of the top mutual funds with the long-term investment horizon.
This fund belongs to the large-cap category of funds and invests in equity and equity-related instruments of large-cap companies. The key details of the fund are tabled below.
| Particulars | Details |
| Fund manager | Mr. Shreyash Devalkar |
| Launch date | 1st January 2013 |
| Minimum investment | Rs. 1,000 |
| Expense ratio | 0.47% |
| Risk | High |
The returns provided by the fund as of 10th May 2022 are tabled below
| Period | 6 months | 1 year | 3 years | 5 years | Since launch |
| Returns | -15.02% | 4.81% | 14.72% | 14.86% | 14.99% |
This fund belongs to the Flexi-cap fund category and invests in equity and equity-related instruments of different companies across the market capitalization. The fund belongs to the high-risk category and is suitable for investors with a higher risk appetite. The key details of the fund are tabled below.
| Particulars | Details |
| Fund manager | Mr. Ajay Tyagi |
| Launch date | 1st January 2013 |
| Minimum investment | Rs. 1,000 |
| Expense ratio | 0.93% |
| Risk | Very high |
The returns provided by the fund as of 10th May 2022 are tabled below
| Period | 6 months | 1 year | 3 years | 5 years | Since launch |
| Returns | -18.28% | 5.85% | 18.42% | 14.73% | 14.98% |
This is another fund that belongs to the large-cap fund category and has seen good returns over the past year. The key details of the fund are tabled below.
| Particulars | Details |
| Fund manager | Mr. Gaurav Misra |
| Launch date | 1st January 2013 |
| Minimum investment | Rs. 1,000 |
| Expense ratio | 0.60% |
| Risk | High |
The returns provided by the fund as of 10th May 2022 are tabled below
| Period | 6 months | 1 year | 3 years | 5 years | Since launch |
| Returns | -10.98% | 11.07% | 14.67% | 13.06% | 16.48% |
This fund belongs to the mid-cap fund category and invests heavily in the equity and equity-related instruments of mid-cap companies. The fund also invests in debt and money market instruments to spread its risk and also enjoy hedging benefits. The key details of the fund are tabled below.
| Particulars | Details |
| Fund manager | Mr. Manish Gunwani |
| Launch date | 1st January 2013 |
| Minimum investment | Rs. 1,000 |
| Expense ratio | 0.41% |
| Risk | Very high |
The returns provided by the fund as of 10th May 2022 are tabled below
| Period | 6 months | 1 year | 3 years | 5 years | Since launch |
| Returns | -11.41% | 20.60% | 21.98% | 14.37% | 16.08% |
A quality investment portfolio will have a good combination of long-term investments as well as short-term investments to provide the maximum advantage of wealth creation at manageable risks. Long-term investing allows the investors to achieve their goals that require higher financial outflow as well as provide sufficient time to gradually build them.
The average investment horizon in long-term investments is 5 years to 7 years or a minimum of 10 years depending on the nature of the investment.
Long-term capital gains from equity funds are taxed at a flat rate of 10% without the benefit of indexation. Investors can get an exemption up to Rs. 1,00,000 on gains from long-term equity funds.
Other long-term investment options include bank FDs, PPF, NPS, NSC, Sukanya Samridhi Yojana, Post Office Time Deposit Schemes, Sovereign Gold Bonds, etc.
The risk of investment is higher in small-cap funds as compared to large-cap funds.
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