Best Mutual Funds for Long Term Investments in India for 2024 (2024)

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Long-term investment involves holding assets for years or decades. This strategy leverages compounding for substantial returns, helps investors weather market volatility, and provides stability against short-term fluctuations. Long-term mutual funds invest in equities, balanced funds, or diversified portfolios to generate significant returns.

These investments are essential for financial planning, particularly retirement, as they offer sustained growth over time. They also help accumulate funds for education by capitalising on potential capital appreciation. For those aiming for overall wealth accumulation, long term mutual funds offer consistent and steady growth. This article will explore a list of the top long term mutual funds in 2024, fund overviews, and how to invest in them.

Top 10 Long Term Mutual Funds in 2024

The following is an educational list of the best long-term mutual funds based on their 3-year and 5-year CAGR:

Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.

• Plan: Growth
• 3Y CAGR: Sorted from Highest to Lowest

Note: The data on the list is from 14th June 2024. This data is derived from the Tickertape Mutual Funds Screener.

🚀 Pro Tip: You can use Tickertape’s Mutual Fund Screener to research and evaluate funds with over 50+ pre-loaded filters and parameters.

Overview of the Best Long Term Mutual Funds

Here is a brief overview of the best long term investments amongst funds:

Invesco India PSU Equity Fund

Invesco India PSU Equity Fund has a net asset value (NAV) of Rs 67.50 for the Growth option under its Regular plan. The fund’s 1-year return is 99.69%, and its 3-year CAGR is 41.07%. It manages assets under management (AUM) worth Rs 1,137.59 cr and has an expense ratio of 0.93%. An exit load of 1% applies to redemptions within 1 year for units exceeding 10% of the investment.

Aditya Birla SL PSU Equity Fund

Aditya Birla Sun Life PSU Equity Fund – Regular Plan has a Current Net Asset Value (NAV) of Rs 35.56 for its Growth option. The fund’s 1-year return is 97.86%, and its 3-year CAGR is 41.36%. The fund manages assets worth Rs 4,115.15 crore and has an expense ratio of 0.45%. If redeemed within 30 days, an exit load of 1% applies.

ICICI Pru Bharat 22 FOF

ICICI Prudential BHARAT 22 FOF – Direct Plan has a current net asset value (NAV) of Rs 32.72 for its Growth option. The fund’s 1-year return is 68.74%, and its 3-year CAGR is 39.91%. The fund manages assets worth Rs 1,178.73 cr and has an expense ratio of 0.12%. There is no exit load for this fund.

ICICI Pru Infrastructure Fund

ICICI Prudential Infrastructure Fund’s current net asset value (NAV) is Rs 188.39 for the Growth option in its Regular plan. The fund’s 1-year return is 69.92%, and its 3-year CAGR is 40.06%. The fund manages assets worth Rs 5,034.14 cr and has an expense ratio of 1.13%. An exit load of 1% applies if the fund is redeemed within 15 days.

Nippon India Power & Infra Fund

Nippon India Power & Infra Fund’s current net asset value (NAV) for the Growth option of its Regular plan is Rs 364.54. The fund’s 1-year return is 82.81%, and its 3-year CAGR is 40.16%. The fund manages assets worth Rs 5,697.01 cr and has an expense ratio of 1.14%. An exit load of 1% applies if redeemed within one month.

Bank of India Credit Risk Fund

The current Net Asset Value (NAV) of the Bank of India Credit Risk Fund – Regular Plan (Growth option) is Rs 11.50. The fund’s 1-year return is 6.73%, and its 3-year CAGR is 40.00%. It manages assets worth Rs 129.09 crore with an expense ratio of 1.19%. The fund imposes an exit load of 4% if redeemed within 12 months, 3% if redeemed between 12 and 24 months, and 2% if redeemed between 24 and 36 months.

SBI PSU Fund

SBI PSU Fund’s current net asset value (NAV) for its Growth option in the Regular plan stands at Rs 33.08. The fund’s 1-year return is 100.84%, and its 3-year CAGR is 39.79%. The fund manages assets under management (AUM) worth Rs 2,352.22 cr with an expense ratio of 0.82%. An Exit Load of 0.50% applies if units are redeemed within 30 days.

DSP India T.I.G.E.R Fund

DSP India T.I.G.E.R. Fund – Regular Plan’s current net asset value (NAV) stands at Rs 328.87 for its Growth option. The fund’s 1-year return is 81.37%, and its 3-year CAGR is 38.76%. The fund manages assets worth Rs 4,385.95 cr with an expense ratio of 1.05%. Investors should note an exit load of 1% if redeemed within 12 months.

Canara Rob Infrastructure Fund

Canara Robeco Infrastructure Fund – Regular Plan’s current net asset value (NAV) for its Growth option is Rs 161.30. The fund’s 1-year return is 75.46%, and its 3-year CAGR is 37.93%. The fund manages assets under management (AUM) worth Rs 694.35 crore and has an expense ratio of 1.07%. Investors should note an Exit Load of 1% if redeemed within 1 year, including for SIP investments.

LIC MF Infra Fund

LIC MF Infrastructure Fund’s Growth option in its Regular plan currently has a net asset value of Rs 48.53. The fund’s 1-year return is 87.87%, and its 3-year CAGR is 39.28%. The fund manages assets under management worth Rs 333.23 cr. Its expense ratio stands at 1.45%. An exit load of 1% is applicable for redemptions within 90 days exceeding 12% of the investment.

How to Invest in the Best Long Term Mutual Funds?

Investing in long-term mutual funds involves several key steps for a smooth process:

1. Open a Demat and Trading Account: A demat account holds your shares electronically, while a trading account facilitates buying and selling. You can open these accounts with a bank, brokerage firm, or through smallcase.
2. Choose a Suitable Long Term Fund: From the variety of long-term mutual funds available, select the best mutual fund to invest for the long term for you based on your investment goals and risk tolerance.
3. Invest in the Fund: You can invest in your chosen fund through a bank, brokerage firm, or mutual fund house. You can opt for a lump sum investment or set up a systematic investment plan (SIP).
4. Monitor Your Investment: Regularly review your investment’s performance to ensure it continues to meet your objectives.

Following these steps will help you navigate investing in long-term mutual funds effectively.

What are Long Term Mutual Funds?

Long-term investments span over three years, with equity mutual funds and hybrid funds being the top choices in long term mutual funds. These long term funds generally provide higher growth than debt mutual funds and traditional investments. However, like all mutual funds, long-term mutual funds are subject to market risks and do not guarantee returns. Long term mutual funds are also typically highly volatile.

How do Long Term Investments Work?

Investors often choose long-term investments when they have surplus capital that they can leave invested for extended periods. Patience is crucial as holding periods can span decades. The power of compounding enables long-term assets to generate excellent returns. The longer the investment period, the higher the potential returns.

Retirement schemes are a common form of long-term investment, driven by the need for retirement planning. Starting early allows individuals ample time to build a substantial retirement fund through compounding. Long-term investments also allow investors to take on prudent risks, as market fluctuations and risks like inflation and downturns tend to balance out over time through rupee-cost averaging, ultimately leading to potentially higher overall returns

Features of the Best Mutual Fund For the Long Term

Long-term mutual funds offer distinct features that set them apart from short-term or mid-term investment options. Understanding these characteristics can help you make informed investment decisions when considering long-term financial goals:

• Long-Term Investment: Long-term mutual funds are ideal for those aiming to achieve significant goals such as retirement, a child’s education, or wedding expenses.
• Risk: Long-term mutual funds carry higher risks compared to short-term or medium-term funds. They are sensitive to interest rate fluctuations and face credit risk since they invest in government and corporate bonds over extended periods.
• Returns: Investing in long-term mutual funds can yield higher returns, potentially reaching double digits over time.

Advantages of Investing in the Best Mutual Fund For Long Term

Investing in a long-term mutual fund scheme presents a host of benefits, each catering to specific financial needs and objectives:

• Strategic Financial Planning: Long term investments necessitate strategic financial planning. By addressing future financial goals well in advance, investors lay a solid foundation for stress-free life goal achievements. With a clear roadmap, financial preparedness ensures a seamless journey toward their aspirations, backed by tools such as SIP and lumpsum mutual fund calculators for return estimation.

• Harnessing the Power of Compounding: The long term investment horizon introduces the powerful concept of compounding, where earnings build upon prior gains. Over spans of 5, 10, or 30 years, compounding significantly multiplies returns, and systematic investment plans (SIPs) further amplify this effect.
• Steady Management of Market Volatility: The best funds for long term investment take a nuanced approach to handling market volatility. Investors develop a deeper understanding of market dynamics and become less susceptible to short-term fluctuations. This leads to more stable and potentially higher returns over time.
• Lightening the Financial Load: Initiating investments early in life, particularly for substantial financial objectives like retirement, education, or marriage, eases the financial burden. Early investments leverage the power of compounding, reducing the rupee cost and enhancing the overall returns. Furthermore, they provide a more robust defence against the market’s short-term fluctuations.

How are Returns Calculated on Long Term Mutual Funds?

When evaluating the best long term mutual funds in India, understanding how returns are calculated is vital. Here’s a concise look at the process:

• Net Asset Value (NAV): NAV represents the fund’s per-unit market value. It’s calculated by deducting liabilities from the total asset value and dividing by the outstanding units. NAV is computed daily.
• Holding Period Returns: This metric assesses performance over a specific time frame. The formula is simple:

Holding Period Return (%) = [(Final NAV – Initial Investment) / Initial Investment] x 100

• Compounded Annual Growth Rate (CAGR): CAGR accounts for compounding effects, offering a more precise view of long-term performance. The formula is:

CAGR (%) = [(Ending NAV / Beginning NAV) ^ (1/n) – 1] x 100

• Total Returns: Consider all gains and income received, not just NAV appreciation. Divide this by your initial investment.
• Volatility and Risk-Adjusted Returns: Though not direct return calculations, these metrics assess a fund’s performance relative to risk levels. Sharpe ratio, Sortino ratio, and other measures offer insights.

Who Should Invest in Good Long Term Mutual Funds?

• Longer Investment Horizon: For those planning to keep money in the market for an extended period, mutual funds are an excellent choice. They are suitable for goals like buying a house or car, funding a child’s education or marriage, building a retirement corpus, or preparing for other future needs.
• Seeking High Returns, Not Immediate Gains: Long-term mutual funds allocate about 65% of investments into equities, which tend to yield higher returns as the market performs well over time. This makes them a strong option for significant growth in the investment corpus.
• Not Expecting Fixed Returns: Since these funds primarily invest in equities, they don’t offer fixed returns (for that, investors may consider debt funds). For those not needing regular income from their investments, long-term mutual funds can effectively grow money over time.

Risks of Investing in the Best Mutual Fund to Invest in Long Term

When considering long-term mutual funds for investment, evaluating the associated risks is essential. Here’s an overview of potential challenges you should be mindful of:

• Market-Linked Risks: Long-term mutual funds, particularly those heavily invested in equities, are exposed to higher market-linked risks. The value of your investment can fluctuate significantly, influenced by the performance of the stocks within the fund. Having a good grasp of the stocks your chosen fund invests in is crucial.
• Return Uncertainty: Even the best mutual funds for long term growth don’t offer guaranteed high returns. For example, even if your fund experiences a loss in one year but performs exceptionally well the following year, the overall yield may not be as impressive when averaged over your investment period.
• Redemption at Current NAV: While you can withdraw from long term investment plans in India, the redemption amount is determined based on the entire fund’s prevailing net asset value (NAV). If the fund faces losses, these losses will be proportionally reflected in your investment corpus.

Taxation on the Best Mutual Funds for Long-Term as per the Union Budget 2024-25

The taxation on capital gains from your mutual fund investments are based on their holding periods and asset allocation. A few revisions were made to the tax rates, depending on their types, in the Union Budget 2024-25. In order to select the best mutual funds for the long-term, it is important to learn about these revisions as well. They include:

Equity Mutual Funds

• Short-Term Capital Gains (STCG): The gains from equity mutual funds held for less than 12 months are now taxed at 20%. This is an increase from the previous tax rate of 15%.
• Long-Term Capital Gains (LTCG): For equity mutual funds held for over a period of over 12 months, gains are classified as long-term capital gains. The new budget introduces these key changes to the LTCG:

1. Tax-Free Limit: The capital gains up to Rs. 1.25 lakh per year are tax-free. This is an increase from the previous limit of Rs. 1 lakh.
2. Tax Rate: The gains exceeding Rs. 1.25 lakh are now taxed at a flat rate of 12.5%. This is an increase from the previous rate of 10%.
3. Indexation: The benefit of indexation, which allowed investors to adjust the purchase price for inflation, has been removed for all asset classes, including equity mutual funds.

Indexation was a method that allowed investors to adjust the purchase price of assets for inflation. This adjustment reduced taxable profits when selling assets like property or gold. Previously, these long-term capital gains were taxed at 20%. The new rule imposes a flat 12.5% tax on all long-term capital gains but eliminates any indexation benefits.

Debt Mutual Funds

• Short-Term Capital Gains (STCG): If you sell your debt fund units within a period of 36 months, the gains are classified as short-term capital gains. The STCG will be taxed according to your income tax slab rate.
• Long-Term Capital Gains (LTCG): For debt funds held for a period over 36 months, the gains are classified as long-term capital gains. The new budget outlines a few changes on the LTCG for debt funds, including:

1. Tax Rate: A flat 12.5% tax rate applies to these gains.
2. No Indexation Benefit: The previous benefit of adjusting the purchase price for inflation is removed. Now, the entire gain after three years is taxable at 12.5%.

Hybrid Mutual Funds

Short-Term Capital Gains (STCG)

The tax on short-term capital gains depends on the fund’s asset allocation when it comes to hybrid mutual funds. Here is a breakdown of STCG tax rates according to their asset allocation in hybrid funds:

• Equity-Oriented Hybrid Funds (more than 65% in equity): The gains from units sold within 12 months are taxed at 20%.
• Debt-Oriented Hybrid Funds (less than 65% in equity): The gains from units sold within three years are taxed according to your income tax slab.

Long-Term Capital Gains (LTCG)

The capital gains tax on hybrid mutual funds that extend the specified period (12 or 36 months) is known as long-term capital gain tax. The tax treatment under this condition is as follows:

• Equity-Oriented Hybrid Funds: The gains from units held for over a period of 12 months are taxed at 12.5%. The gains up to Rs. 1.25 lakh are tax-free.
• Debt-Oriented Hybrid Funds: The gains from units held for over a period of 36 months are taxed at 12.5% without indexation benefits. This means the entire gain is taxed at this rate, without adjustment for inflation.

Note: Mutual fund schemes where neither the equity nor debt orientation exceeds 65% will now be classified as long-term investments after 24 months. The previous holding period for these funds was 36 months. These will be taxed at the revised LTCG tax rate of 12.5%.

Factors to Consider When Choosing Long-Term Mutual Funds

There are several key factors to consider when making informed investment decisions when selecting long-term mutual funds. Here’s a breakdown of what to keep in mind:

• Investment Goals: Begin by defining your investment objectives. Are you looking to build wealth for retirement, fund your child’s education, or achieve other financial goals? Understanding your purpose will help you select a fund that is aligned with your objectives and builds the best mutual fund portfolio for the long term.
• Risk Tolerance: Assess your risk tolerance. Long-term mutual funds can vary in risk levels. Consider how comfortable you are with market fluctuations and choose funds that match your risk profile.
• Fund Type: Long term investment options in India come in various types, such as equity, debt, hybrid, and more. Each type serves a distinct purpose. Ensure the fund type aligns with your investment goals and risk tolerance.
• Historical Performance: Review the fund’s historical performance. While past performance doesn’t guarantee future results, it can provide insights into how the fund has fared under different market conditions.
• Fund Manager Expertise: The fund manager plays a critical role in a fund’s performance. Investigate the track record and expertise of the fund manager managing the long-term fund you’re considering.
• Expense Ratio: The expense ratio impacts your returns. Lower expense ratios mean more of your investment goes toward generating returns. Compare expense ratios to make cost-effective choices.

Differences Between Long and Short-Term Mutual Funds

The following table demonstrates a comparative analysis of long and short term investment options in mutual funds:

Which Mutual Funds are Best for Long Term?

Equity funds are commonly the popular choice for long term investors. Equity funds, including large caps, midcap funds, small cap mutual funds, value funds, multi-cap funds, and Equity Linked Savings Schemes (ELSS Funds), allocate at least 65% of their assets to equities or company shares. This provides a diversified approach for small investors to own shares in multiple companies. However, this ownership entails certain risks.

In the long term, companies tend to grow and stabilise, passing on the benefits to investors. Equity markets are highly sensitive, and fluctuations can be swift. While traders may leverage short-term market movements, equity mutual fund investors often rely on fund managers for decision-making; these funds can provide substantial returns in the long term due to factors like rupee-cost averaging. However, it is essential to conduct thorough research and conduct a financial advisor before determining which mutual fund is good for long term investments.

To Wrap It Up…

In conclusion, long-term mutual funds offer an effective strategy for investors with specific long-term financial goals and risk appetites. Their potential for higher returns, coupled with the power of compounding, makes them an attractive choice for those willing to commit for the long term. However, aligning these funds with your financial objectives and carefully assessing your risk tolerance is crucial. Whether you’re planning for retirement, your child’s education, or simply looking to harness the benefits of compounding, long-term mutual funds may be a valuable addition to your investment portfolio. However, it is always recommended for investors to consult a financial advisor and conduct thorough research before investing.

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Frequently Asked Questions (FAQs) on Long Term Mutual Funds