Best Mutual Funds for Long Term

Best Long-Term Mutual Funds to Invest in India (2025)

Investing in mutual funds for the long term is one of the smartest ways to build wealth steadily. With the power of compounding, even small amounts can grow significantly over many years5paisa.com. Long-term mutual fund investments help you ride through market ups and downs, reducing the impact of short-term volatility. Choosing the right funds is key to achieving your financial goals. In this guide, we explain the main types of mutual funds suited for long-term goals, share examples of top-performing funds, and cover important concepts like SIP, CAGR, NAV and the risk-return trade-off. We also give tips on picking funds based on your goals, age, and risk appetite.

Why Invest in Mutual Funds for the Long Term?

Mutual funds let you invest in a mix of stocks, bonds, or other assets managed by experts. The best mutual funds typically show consistent returns and manage risk well5paisa.com. They have experienced fund managers, transparent strategies, and a good track record over 3–5 years5paisa.com. By investing for at least 5–10 years, you can take advantage of market growth and compound returns, helping you meet big goals like retirement, children’s education, or buying a home.

“Investing in mutual funds for the long term is one of the smartest ways to build wealth steadily. With the power of compounding, even small amounts can grow significantly over time.”

Here are some key benefits of mutual funds for long-term investors:

  • Professional Management: Your money is managed by skilled fund managers who research and select investments on your behalf.
  • Diversification: Mutual funds invest in many securities, spreading risk. This way, a single bad investment does not hurt your whole portfolio.
  • Liquidity and Affordability: You can buy or sell most mutual fund units easily (high liquidity)5paisa.com. Many funds allow starting with small amounts via SIPs (as low as ₹100–₹500), making them accessible to everyone.
  • Transparency: Funds publish regular updates, factsheets, and portfolio holdings, keeping you informed.
  • Tax Benefits: Certain equity schemes called ELSS (Equity-Linked Savings Schemes) give tax deductions under Section 80C (up to ₹1.5 lakh per year).

However, remember mutual funds also carry risks. They can lose value in market downturns5paisa.com. Funds charge fees (expense ratio, exit load) that affect returns5paisa.com. Unlike fixed deposits, mutual funds don’t guarantee returns. Fund managers or strategies may change over time5paisa.com. It’s important to review your investments regularly.

Types of Mutual Funds for Long-Term Goals

Not all mutual funds are the same. Some are better suited for long-term wealth creation. Below are key fund types:

  • Equity Funds: These invest mainly in stocks. Over long periods, equity funds tend to give higher returns (but with higher volatility). Within equity funds, there are categories like large-cap (stable big companies), mid-cap/small-cap (growing companies), multi-cap (across market caps), sector/thematic (focused on one industry), and flexi/multi-cap (dynamic mix). For example, large-cap funds are less risky but still grow with the market. Mid-cap funds carry more risk but can deliver higher growth. Flexi-cap funds can switch between large, mid, small to grab opportunities.
  • Hybrid (Balanced) Funds: These funds mix equity and debt in one portfolio. They aim to balance risk and return. For instance, a conservative hybrid fund might keep 70% in debt (bonds) and 30% in equity, giving stability with some growth. An aggressive hybrid fund may have 80%+ in equity for more growth potential. Hybrid funds can be good for moderate-risk investors who want growth plus some safety.
  • Index Funds: These are passively managed equity funds that simply track a market index (like NIFTY 50 or SENSEX). They copy the index’s performance. Index funds have very low fees and tend to give steady returns close to the market average. They are ideal if you want market returns with low cost. For long-term investors aiming for broad market exposure, index funds are a simple choice.
  • Debt Funds: Pure debt funds invest in bonds and fixed-income instruments. Generally, they are safer but give lower returns. While equity funds are main wealth builders, long-duration debt funds can help stabilize a portion of the portfolio in volatile times. However, for long-term growth, equity or hybrid funds are usually preferred.
  • Tax-Saving (ELSS) Funds: These are equity funds with a 3-year lock-in that also give tax deduction under Section 80C. They are good for long-term goals and tax saving. Since ELSS are equity funds, they carry higher risk and should be held for at least 3-5 years.

Hybrid Fund Example: HDFC Balanced Advantage Fund (Direct) has delivered ~25–27% annualized returns over 5 years and can automatically shift between stocks and bonds based on market conditions.

Index Fund Example: Index funds like Nippon India Index Fund (Nifty 50) or UTI Nifty Index Fund simply track the NIFTY 50. A well-known fact is that over long periods, India’s large-cap indices have grown roughly 10-12% per year on average. Index funds allow you to match these returns without stock-picking.

Key Investment Concepts

Before choosing funds, it helps to understand some basic terms:

  • Systematic Investment Plan (SIP): SIP means investing a fixed amount regularly (say ₹500–₹5,000 per month) in a mutual fund, instead of investing a lump sum. SIPs help in disciplined investing and benefit from Rupee Cost Averaging. When markets fall, your fixed SIP amount buys more units; when markets rise, it buys fewer units. Over time, this can lower your average cost per unit. SIPs also let you start small – many funds allow SIPs from ₹100–₹500. They encourage consistency and remove the worry of timing the market.
  • Compound Annual Growth Rate (CAGR): CAGR is the average annual return of an investment, assuming profits are reinvested. It smooths out ups and downs to show how much, on average, the investment grew each year. For example, if a ₹1 lakh investment grows to ₹1.72 lakh in 5 years, the CAGR is 11.28%. It is a common way to compare fund performance over 3, 5, or 10 years. A higher CAGR means better average growth, but remember it doesn’t show year-to-year swings.
  • Net Asset Value (NAV): NAV is the per-unit value of a mutual fund. It is calculated as (Fund’s total assets minus liabilities) divided by total units outstanding. NAV changes daily with market movements. When you invest, you buy fund units at the NAV (plus any load/fees). Over time, NAV growth reflects how the fund’s portfolio has appreciated.
  • Risk-Return Trade-Off: This is a basic investment principle: higher returns usually come with higher risk, and vice versa. If you want big gains, you must be willing to accept market ups and downs. If you prefer safety, you should expect more modest returns. For example, equity funds (riskier) can grow wealth faster, while debt funds (safer) give slower growth. It’s important to find the right balance between risk and return based on your comfort level and goals. “Higher returns usually come with increased risk, while safer investments offer lower returns.”

Top Performing Mutual Funds (Examples)

Below is a comparison of some well-known mutual funds that have shown strong long-term performance. (Note: Past returns do not guarantee future performance. Data as of 2025.)

Fund (Direct/Growth)Category1-Year Return3-Year CAGR5-Year CAGR
DSP Top 100 Equity Fund – Direct – GrowthLarge-Cap Equity26.49%20.10%23.34%
Motilal Oswal Midcap Fund – Direct – GrowthMid-Cap Equity36.57%27.57%38.25%
HDFC Focused 30 Fund – Direct – GrowthLarge-Cap Equity29.23%24.77%32.35%
Nippon India Large Cap Fund – Direct – GrowthLarge-Cap Equity24.58%20.80%28.32%
Parag Parikh Flexi Cap Fund – Direct – GrowthFlexi Cap EquityData not in 5paisa table (5★ VR)≈15-18% (est)≈18-20% (est)
Hybrid Funds:
HDFC Balanced Advantage Fund – Direct – GrowthHybrid (Dynamic Equity-Debt)6.5% (1Y)24.69%25.74%
JM Aggressive Hybrid Fund – Direct – GrowthHybrid (Aggressive)27.58%28.45%
ICICI Prudential Equity & Debt Fund – DirectHybrid (Aggressive)10.8%24.18%26.71%

Sources: 5paisa Research (May 2025)5paisa.com5paisa.com, Groww (Hybrid Funds)groww.ingroww.in.

This table highlights a mix of fund types:

  • Large-Cap Equity Funds: e.g. DSP Top 100, Nippon Large Cap – generally steady growth with moderate risk.
  • Mid-Cap Funds: e.g. Motilal Oswal Midcap – higher growth potential (notice 5Y ~38%), but also higher volatility.
  • Flexi-Cap Funds: Parag Parikh Flexi Cap (not in 5paisa list) is a popular diversified equity fund (lowest holdings in India, long-term multicap) with solid 5-year returns (usually ~18-20% p.a.).
  • Hybrid Funds: a blend of equity and debt. For example, HDFC Balanced Advantage (dynamic asset allocation) and JM Aggressive Hybrid. These offer a mix of growth and some stability, giving 5-year returns in mid-20s.

Investors should also consider large fund houses like SBI, UTI, Franklin Templeton, etc. For index exposure, UTI Nifty Index Fund or HDFC Sensex ETF can track broad indices (typically ~10-12% CAGR).

How to Choose the Right Mutual Fund

Choosing the right fund depends on your financial goals, investment horizon, age, and risk appetite. Here are some guidelines:

  • By Goals and Horizon: Match funds to your goals. For very long-term goals (retirement in 15+ years, child’s education after 10 years), equity or hybrid funds are suitable. For nearer-term goals (3–5 years), consider balanced or debt funds to reduce risk. Tax-saving goals (under 80C) point to ELSS funds (lock-in 3 years, but still equity risk).
  • By Age: Younger investors can tolerate more risk and may allocate 80-100% to equity funds, since they have time to recover from market dips. As you age and get closer to retirement, shifting gradually to safer assets is prudent. For example, by your 50s, you might hold only 60-70% in equities and move 30-40% to debt or hybrid funds. This shift preserves capital as you near retirement.
  • By Risk Appetite: Determine if you are conservative, moderate, or aggressive:
    • Aggressive/Risk-taker: You may choose mostly high-growth funds (mid-cap, small-cap, sector funds) for higher returns, accepting more volatility.
    • Moderate: A balanced approach – a mix of large-cap and some mid-cap, or hybrid funds.
    • Conservative: Lean towards large-cap, balanced funds, or debt funds for stability.
    Always assess your comfort with losing some value in a market downturn. A good fund should match your risk tolerance. For instance, if stock market swings make you anxious, avoid pure small-cap funds and favor large-cap or hybrid schemes.
  • Other Factors: Check the fund’s expense ratio (lower is better) and track record. Look at its 3-5 year CAGR, past sharpe ratio (returns vs risk), and portfolio (which sectors it holds). Read the fund’s strategy – is it focused on growth stocks, value stocks, sector bets, etc.? Ensure the fund manager is experienced.
  • Review Regularly: Even after choosing, review your portfolio yearly. Markets change, and your personal situation may change (new goals, higher income, etc.). Rebalance by moving money from over-performing funds into under-represented assets to maintain your target allocation.

“Knowing your risk appetite can help you pick mutual funds that match your comfort zone whether it is low-risk debt funds or high-return equity options.”

Advantages and Risks of Mutual Funds

Advantages:

  • Professional Management: Experts pick stocks/bonds and monitor the market for you.
  • Diversification: Even with a small investment, you get a spread of holdings across sectors and assets, lowering risk.
  • Liquidity & Convenience: Buying/selling units is easy online or via an app. SIPs automate your investing so you don’t have to time the market.
  • Low Minimums: You can start SIPs with ₹100 or ₹500 in many schemes.
  • Tax Benefits: ELSS funds offer income tax deductions up to ₹1.5 lakh under Section 80C.

Risks/Disadvantages:

  • Market Risk: Values can fall during market downturns. If you need money soon after a crash, you could incur losses.
  • Fees: Funds charge an expense ratio (usually 0.5%-2.5%). High fees eat into returns. Also, some funds have exit loads if redeemed early.
  • No Guaranteed Returns: Unlike bank FDs, mutual funds don’t promise a fixed return . Performance depends on market conditions.
  • Fund Manager Risk: A change in fund manager or strategy can impact performance.
  • Tracking and Discipline: You should monitor your portfolio periodically. It’s easy to forget and leave losses unchecked if a fund underperforms.

Taxation of Mutual Funds

For Indian mutual funds, tax rules are important for long-term planning:

  • Equity Funds: If you hold equity or equity-oriented funds (over 65% in stocks) for more than 1 year, gains up to ₹1.25 lakh per year are tax-free. Beyond that, long-term capital gains (LTCG) are taxed at 10% (without indexation). Short-term gains (holding ≤1 year) are taxed at 20% for equity funds.
  • Debt Funds: For non-equity funds (debt, hybrid with <65% equity), the holding period for long-term is 3 years. Long-term debt fund gains get indexation benefits and are taxed at 20% (with indexation). Short-term gains (≤3 years) are added to income and taxed per your income slab.

These rules changed recently: now LTCG exemption is ₹1.25 lakh (up from ₹1 lakh)5paisa.com, but indexation benefits on equity LTCG have been removed. Keep taxes in mind when buying or selling.

Conclusion

Mutual funds are a proven way to grow wealth over the long term with relatively small initial investments and professional management. By choosing the right mix of equity, hybrid, and index funds suited to your goals, and investing consistently through SIPs, you can harness compounding to meet your financial targets. Always remember to match your fund choices with your risk appetite and investment horizon. Stay informed about fund performance and any changes in taxation. With discipline and patience, long-term mutual fund investing can play a major role in securing a comfortable financial future.

For a lasting impact, start early and keep investing regularly. Over 10+ years, even modest SIPs can grow many times thanks to compounding and market growth.

Remember: No fund is “best” for everyone. The best fund for you aligns with your personal goals, risk level, and time frame. Stay focused on the long term, review periodically, and let your investments grow with time5paisa.com.

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