The purpose of long-term investments is to finance distant future objectives, such as a college education, a home, retirement, etc. Choose a proper fund for wealth creation. Long-term objectives have a time horizon greater than five years, and equity-oriented schemes (>=65 per cent equity allocation) are considered one of the finest long-term investment options. Compared to hybrid and debt funds, equities have a greater growth potential despite being more volatile in the short term. A well-diversified equities fund is more likely to provide long-term growth stability.
Look for funds with greater risk-adjusted returns (Sharpe ratio), that is, funds that deliver better returns for the same amount of risk.
Long-term fund results are affected by expense ratios due to the compounding effect. Choose a fund with a smaller expense ratio, indicating that there is more money available for investing, which can enhance the fund’s long-term performance. Examine the fund manager’s track record to determine if he has been producing positive returns. Examine the types of funds he has managed and whether or not they have regularly beaten their counterparts. For long-term investments, you can also consider funds with a higher beta because they tend to gain/lose more than the market, but markets tend to rise. Therefore, a larger beta indicates that your fund will outperform the market over the long term.
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 per cent of their assets in equities or corporations. It is one of the finest solutions for small investors to buy several firms’ shares. Nevertheless, there are hazards associated with such ownership.
Share prices fluctuate in the short term as a result of market demand and supply, company performance, corporate activities, and government and economic policies. Long-term, the businesses expand and stabilize. The enterprises would have had sufficient time to expand their businesses and profits. These benefits are passed on to investors over the long run. If there are benefits in the short term, the companies would want to retain the majority of them for growth purposes.
Equity markets are quite volatile. The market may reach its peak or decline in a single day. Traders could potentially profit from instances like these. However, equities mutual fund investors are not in a position to act. First, since the portfolio decisions are all made by the fund manager. Second, investors are uninformed. They can only redeem their investment to prevent future financial losses.
However, equity funds are accompanied by an investing horizon. There is no hard and fast rule dictating how long investors must remain invested. However, investors in stocks should have a long-term perspective. Throughout their financial journey, they must be patient and disregard short-term market volatility. Long-term, their patience is rewarded with superior returns to the market.
Long-term (5 years or more) investments in equity-oriented mutual funds have the potential to generate substantial returns. Moreover, the investment risk decreases the longer you hold investments. The key to effective long-term investing is selecting the appropriate equity-oriented funds and maintaining a long-term investment horizon.
Listed below are some tips for selecting long-term mutual funds:
Scheme | 5-Year Return | AUM (INR) (Cr) |
Canara Robeco Bluechip Equity Fund | 15.21% | 8,570.85 |
Axis Bluechip Fund | 13.76% | 36,529.61 |
Edelweiss Large Cap Fund | 13.29% | 379.23 |
Sundaram Large Cap Fund | 13.10% | 3,087.09 |
Baroda BNP Paribas Large Cap Fund | 13.04% | 1,397.36 |
Source: AMFI (data as of 21/11/2022)
Scheme | 5-Year Return | AUM (INR)(Cr) |
Quant Small Cap Fund | 22.84% | 2,442.89 |
Axis Small Cap Fund | 19.65% | 11,095.23 |
Nippon India Small Cap Fund | 17.46% | 23,092.05 |
Kotak Small Cap Fund | 17.18% | 8,342.12 |
SBI Small Cap Fund | 16.42% | 15,041.33 |
Source: AMFI (data as of 21/11/2022)
Scheme | 5-Year Return | AUM (INR)(Cr) |
Quant Flexi Cap Fund | 19.35% | 774.53 |
Parag Parikh Flexi Cap Fund | 17.34% | 28,142.60 |
PGIM India Flexi Cap Fund | 16.10% | 5,236.98 |
Canara Robeco Flexi Cap Fund | 14.62% | 8,682.87 |
UTI Flexi Cap Fund | 14.33% | 25,726.34 |