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Long Duration Funds

The best long term mutual funds are market vehicles that keep the investor’s money parked in market instruments for longer durations, typically for about 7 to 10 years. For example, selecting a Systematic Investment Plan that invests in the best long term mutual fund for ten years will make your investments compound over time as per the performance of the stocks the fund invests in over 10 years.

Typically, it is better not to pull out of long term mutual funds once you start to reap maximum benefits. Long term mutual funds are an investor-favourite because they help achieve long term financial goals, like children’s education.

Who Should Invest in Long Term Funds?

Long term mutual funds are best suited for investors who wish to accomplish their financial goals of the distant future. Think in decades: how much would you need your money to have grown for 10 years? Additionally, if you fall in any of the categories listed below, it is time you start searching for the best mutual funds to invest in for long term.

Longer Investment Horizon

Are you planning to park your money in the market for the long term? Mutual funds are the best option. Long term mutual funds are the answer for future financial goals like buying a house, a car, a child’s education or marriage, retirement corpus, or anything else you need for the future.

Need High Returns, But Not Right Now

Long-time mutual funds invest a major part of your money (about 65%) into equities. This means the fund typically yields higher returns because equities are market instruments that perform well when the market is high. In the long term, the investment corpus grows exceptionally well.

Not Looking for Fixed Returns

Since best long term mutual funds invest majorly in equities, there is no chance of receiving a fixed return (fixed returns can be set up by selecting a debt fund scheme instead of investing it in equities). If you do not need a “salary” from investment, then long term mutual funds are a great market vehicle to still make your money grow in the longer run.

Features of Long Term Funds

Before selecting a long term mutual fund to invest in, consider the following features to ensure that you are making an informed decision.

Fund Management

A fund manager typically manages mutual funds. Especially in the case of long term mutual funds, the fund manager makes the market decisions for you so that your money stays invested in stocks that are performing well. This is good for the long term.

Mode of Investment

You have two options to get started with long term mutual funds:

  • Lump-sum investment, where you put all your money at once into a mutual fund.
  • Systematic Investment Plan where you designate a fixed amount of money at regularly decided intervals to put into a mutual fund.

Market Instrument

Long term mutual funds invest in equities, meaning that they are inherent with market risks. With that said, they do yield higher returns than anything else and may also absorb the risk over longer periods.

Taxability of Long Term Funds

Long term funds in mutual funds are taxed a certain specific way. There are two categories of these funds: equity-oriented (where at least 65% of the corpus is invested in equities) and all the other kinds of investments.

For funds that invest in equities, the profits are liable for capital gains tax:

  • Short-term capital gains tax does not apply to long term funds, as in this case, the investment horizon is longer than one year.
  • Long term capital gains tax is levied at a rate of flat 10% without indexation benefits if you stay invested in long term funds for more than a year. However, for the first ₹1 lakh gain, the long term funds enjoy an exemption in taxation. Post that, the usual taxation regime applies.

Investors prefer investing in long term mutual funds because of the taxation benefits they provide: especially those investors that pay tax in the higher slabs of income tax.

Risks Involved With Long Term Funds

If you are looking for long term mutual funds to invest in, take some time to evaluate the risks associated with them. Here is a list of potential risks you need to be aware of:

Risk of Losses

Investing money in the market anyway constitutes risks. However, with long term mutual funds, the risks are higher. This is because they invest in equities. These market instruments are sensitive to market behaviour and may fluctuate wildly depending on the performance of the stocks they invest in. Make sure you understand the stocks your fund invests in before putting money into it.

No Guarantee

Mutual funds do not guarantee high returns. For example, if your fund went into a loss for one year, and the very next year, it performed exceptionally well. If you average the fund’s performance over the term of investment, the yield is not very impressive at the end.

Payout at Current NAV

You have the option of pulling out of long term mutual funds. However, the redemption you receive will be per the prevailing Net Asset Value of the entire fund. If the fund is making losses, it will reflect on your corpus in the same proportion.

Advantages of Long Term Mutual Funds

Despite the risks involved, smart investors still keep their money parked in the best MF for long term investment. They have certain unbeatable benefits that other market vehicles rarely provide:

Absorption of Market Risks

The equities market is fraught with risks. The performance of stocks that your fund invests in keeps fluctuating. However, in the longer investment horizon, these fluctuations stop being significant. The average performance of a long term fund is still better than most.

Big Corpus

At the end of the investment term, your money will have grown into a sizeable amount that can absorb the risk of inflation as well. You can utilize this corpus for whatever dreams you started investing in. The performance of equities is generally very good over longer periods.

Small Investment

You can start with a long term mutual fund SIP investment with as little as ₹500 a month. The benefit of compounding makes the returns better than fixed asset investments.

Best Long Duration Funds

PGIM India Midcap Opportunities Fund Direct-Growth

  • PGIM India Midcap Opportunities Fund Direct-Growth has assets under management (AUM) of ₹6,022.66 Cr as of 12/08/2022. Most of the fund’s assets are invested in the Automobile, Capital Goods, Financial, Consumer Staples, and Technology sectors. TVS Motor Company Ltd., ABB India Ltd., Timken India Ltd., HDFC Bank Ltd., and Varun Beverages Ltd. are the fund’s top five holdings. Its NAV as on 12 Aug 2022 is Rs 49.22. The expense ratio for Axis mid-cap fund is 0.45% (Inclusive of GST). The fund has an exit load of 0.5% and will be charged for redemption within 90 days.
  • Minimum Investment Amount: Rs. 5,000 via SIP. 1,000.
  • Fund Performance: PGIM India Midcap Opportunities Fund Direct-Growth Plan’s 1-year growth returns are 13.5%, 3-year growth returns are 41.8%, and 5-year growth returns are 21.6%. Its fund managers are Puneet Pal – Jul 2022 – Present, Aniruddha Naha – Apr 2018 – Present, and Vivek Sharma – Jun 2021 – Present.

Bank of India Small Cap Fund Direct-Growth

  • Bank of India Small Cap Fund Direct-Growth has assets under management (AUM) of Rs. 333.29 Cr as of 12/08/2022. Most of the fund’s assets are invested in the Financial, Capital Goods, Textiles, Automobile, and Metals & Mining sectors. ICICI Bank Ltd., Timken India Ltd., City Union Bank Ltd., KPR Mills Ltd., and Jamna Auto Industries Ltd. are the fund’s top five holdings. Its NAV as on 12 Aug 2022 is Rs 27.69. The expense ratio for Axis mid-cap fund is 1.12% (Inclusive of GST). The fund has an exit load for units over 10% of the investment; 1% will be charged for redemption within 12 months.
  • Minimum Investment Amount: Rs. 5,000 via SIP. 1,000.
  • Fund Performance: Bank of India Small Cap Fund Direct-Growth Plan’s 1-year growth returns are 10.9%, 3-year growth returns are 41.8%, and 5-year growth returns are 32.4%. Its fund managers are Dhruv Bhatia – Apr 2022 – Present.

Canara Robeco Small Cap Fund Direct-Growth

  • Canara Robeco Small Cap Fund Direct-Growth has assets under management (AUM) of Rs. 3,074.11 Cr as of 12/08/2022. Most of the fund’s assets are invested in the Capital Goods, Financial, Services, Construction, and Metals & Mining sectors. Schaeffler India Ltd., City Union Bank Ltd., VRL Logistics Ltd., Ltd., Cera Sanitaryware Ltd., and Grindwell Norton Ltd. are the fund’s top five holdings. Its NAV as on 12 Aug 2022 is Rs 25.71. The expense ratio for Axis mid-cap fund is 0.42% (Inclusive of GST). The fund has an exit load of 1% and will be charged for redemption within 1 year.
  • Minimum Investment Amount: Rs. 5,000 via SIP. 1,000.
  • Fund Performance: Canara Robeco Small Cap Fund Direct-Growth Plan’s 1-year growth returns are 23.2%, and 3-year growth returns are 41.7%. Its fund managers are Shridatta Bhandwalda- Oct 2019 – Present, Ajay Khandelwal Dec 2021 – Present.

Quant Tax Plan Direct Growth

  • Quant Tax Plan Direct-Growth has assets under management (AUM) of ₹1,584.38 Cr as of 12/08/2022. Most of the fund’s assets are invested in the Financial, Consumer Staples, Services, Construction, and Energy sectors. State Bank of India, ITC Ltd., ICICI Bank Ltd., Patanjali Foods Ltd., and Adani Enterprises Ltd. are the fund’s top five holdings. Its NAV as on 12 Aug 2022 is Rs 250.34. The expense ratio for Axis mid-cap fund is 0.57% (Inclusive of GST). The fund has a NIL exit load.
  • Minimum Investment Amount: Rs. 500 via SIP. 500.
  • Fund Performance: Quant Tax Plan Direct Growth Plan’s 1-year growth returns are 14.6%, 3-year growth returns are 40.7%, and 5-year growth returns are 23.8%. Its fund managers are Vasav Sahgal Apr 2022 – Present, Ankit A Pande May 2020 – Present, Chandramouli Alla Apr 2022 – Present.

Quant Infrastructure Fund Direct Growth

  • Quant Infrastructure Fund Direct-Growth has assets under management (AUM) of ₹621.41 Cr as of 12/08/2022. Most of the fund’s assets are invested in the Construction, Financial, Services, Healthcare, and Services sectors. Larsen & Toubro Ltd., State Bank of India, Adani Enterprises Ltd., Ambuja Cements Ltd., and Adani Ports and Special Economic Zone Ltd. are the fund’s top five holdings. Its NAV as on 12 Aug 2022 is Rs 23.23. The expense ratio for Axis mid-cap fund is 0.64% (Inclusive of GST). The fund has an exit load of 0.5% and will be charged for redemption within 90 days.
  • Minimum Investment Amount: Rs. 5,000 via SIP. 1,000.
  • Fund Performance: Quant Infrastructure Fund Direct-Growth Plan’s 1-year growth returns are 26%, 3-year growth returns are 40%, and 5-year growth returns are 24.1%. Its fund managers are Vasav Sahgal Apr 2022 – Present, Ankit A Pande May 2020 – Present, Chandramouli Alla Apr 2022 – Present.

Quant Mid Cap Fund Direct-Growth

  • Quant Mid Cap Fund Direct-Growth has assets under management (AUM) of Rs. 621.31 Cr as of 12/08/2022. Most of the fund’s assets are invested in the Consumer Staples, Automobile, Services, Financial, and Communication sectors. Patanjali Foods Ltd., Ashok Leyland Ltd., The Indian Hotels Company Ltd., Canara Bank Financial, and Bank Of Baroda are the fund’s top five holdings. Its NAV as on 12 Aug 2022 is Rs 134.44. The expense ratio for Axis mid-cap fund is 0.63% (Inclusive of GST). The fund has an exit load of 0.5% and will be charged for redemption within 90 days.
  • Minimum Investment Amount: Rs. 5,000 via SIP. 1,000.
  • Fund Performance: Quant Mid Cap Fund Direct Growth Plan’s 1-year growth returns are 18.5%, 3-year growth returns are 37.6%, and 5-year growth returns are 21.5%. Its fund managers are Sanjeev Sharma Oct 2019 – Present, Vasav Sahgal Apr 2022 – Present, Ankit A Pande May 2020 – Present, and Chandramouli Alla Apr 2022 – Present

Axis Small Cap Fund Direct-Growth

  • Axis Small Cap Fund Direct-Growth has assets under management (AUM) of Rs. 9811.15 Cr as of 12/08/2022. Most of the fund’s assets are invested in the Chemicals, Construction, Healthcare, Technology, and Consumer Staples sectors. Galaxy Surfactants Ltd., Fine Organic Industries Ltd., Brigade Enterprises Ltd., Narayana Hrudayalaya Ltd., and Birlasoft Ltd. are the fund’s top five holdings. Its NAV as on 12 Aug 2022 is Rs 69.21. The expense ratio for Axis mid-cap fund is 0.49% (Inclusive of GST). The fund has an exit load for units over 10% of the investment; 1% will be charged for redemption within 12 months.
  • Minimum Investment Amount: Rs. 5,000, and via SIP is Rs. 500.
  • Fund Performance: Axis Small Cap Fund Direct Growth Plan’s 1-year growth returns are 14.2%, 3-year growth returns are 31.8%, and 5-year growth returns are 22%. Its fund managers are Anupam Tiwari Oct 2016 – Present, Hitesh Das Dec 2020 – Present.

SBI Contra Direct Plan-Growth

  • SBI Contra Direct Plan-Growth has assets under management (AUM) of Rs. 5,291.25 Cr as of 12/08/2022. Most of the fund’s assets are invested in the Financial, Automobile, Energy, Technology, and Consumer Staples sectors. HDFC Bank Ltd., ICICI Bank Ltd., Reserve Bank of India, Tube Investments Of India Ltd., and State Bank of India are the fund’s top five holdings. Its NAV as on 12 Aug 2022 is Rs 228.87. The expense ratio for Axis mid-cap fund is 1.27% (Inclusive of GST). The fund has an exit load of 1% and will be charged for redemption within 1 year.
  • Minimum Investment Amount: Rs. 5,000, and via SIP is Rs. 500.
  • Fund Performance: SBI Contra Direct Plan Growth Plan’s 1-year growth returns are 19.2%, 3-year growth returns are 30.6% and 5-year growth returns are 16.2%. Its fund managers are Dinesh Balachandran May 2018 – Present; Mohit Jain Nov 2017 – Present.

PGIM India Flexi Cap Fund Direct-Growth

  • PGIM India Flexi Cap Fund Direct-Growth has assets under management (AUM) of Rs. 4761.35 Cr as of 12/08/2022. Most of the fund’s assets are invested in the Energy, Financial, Technology, Communication, and Capital Goods sectors. Reliance Industries Ltd., HDFC Bank Ltd., ICICI Bank Ltd., Infosys Ltd., and Axis Bank Ltd. are the fund’s top five holdings. Its NAV as on 12 Aug 2022 is Rs 28.28. The expense ratio for Axis mid-cap fund is 0.44% (Inclusive of GST). The fund has an exit load of 0.5% and will be charged for redemption within 90 days.
  • Minimum Investment Amount: Rs. 5,000 via SIP. 1,000.
  • Fund Performance: PGIM India Flexi Cap Fund Direct-Growth Plan’s 1-year growth returns are 1.3%, 3-year growth returns are 27.9%, and 5-year growth returns are 17.4%. Its fund managers are Puneet Pal Dec 2021 – Present, Aniruddha Naha Apr 2018 – Present, Anandha Padmanabhan Anjeneyan Jan 2021 – Present, and Rahul Jagwani May 2022 – Present.

Quant Large and Mid Cap Fund Direct-Growth

  • Quant Large and Mid Cap Fund Direct-Growth have assets under management (AUM) of ₹194.57 Cr as of 12/08/2022. Most of the fund’s assets are invested in the Automobile, Consumer Staples, Insurance, Financial, and Services sectors. The fund’s top five holdings are Ashok Leyland Ltd., Patanjali Foods Ltd., ITC Ltd., ICICI Lombard General Insurance Company Ltd., and State Bank of India. Its NAV as on 12 Aug 2022 is Rs 72.64. The expense ratio for Axis mid-cap fund is 0.56% (Inclusive of GST). The fund has a NIL exit load.
  • Minimum Investment Amount: Rs. 5,000 via SIP. 1,000.
  • Fund Performance: Quant Large and Mid Cap Fund Direct-Growth Plan’s 1-year growth returns are 16.5%, 3-year growth returns are 27.2%, and 5-year growth returns are 15.3%. Its fund managers are Sanjeev Sharma Oct 2019 – Present, Vasav Sahgal Apr 2022 – Present, Ankit A Pande May 2020 – Present, and Chandramouli Alla Apr 2022 – Present. 

Frequently Asked Questions

Investments in Long Duration Funds are for a minimum of 3 years. The resulting returns are referred to as LTCGs or long-term capital gains. These are taxable at 20 regardless of the income tax rate. Long-duration funds capital gains tax considers indexation and helps investors reduce their overall tax liability.

Yes, you can sell long-duration funds after doing considerable research on their potential gain or loss in returns at any time as needed.

Yes, bond funds can lose money based on interest rate fluctuations. The size of the gains or losses also depends on the portfolio’s composition.

Long-duration funds don’t have specific regulations on the type of borrowers they can lend to. However, most of the funds in this category lend themselves to high-end, secure, or quality borrowers.

Long duration funds have a long horizon. It means that investments will likely go through an entire business cycle and therefore involve greater risk than short-term funds. These funds pose a higher risk in case of changes in interest rates if there is any reversal of the business or economic cycle.

Long Duration Funds have averaged returns of 3.76% per year, whereas their annualized returns over 3 and 5 years are 6.15% and 6.1%, respectively.

Several Investors look for stable returns to reach a long-term financial goal, such as buying a house, saving for retirement, or financing their child’s education. Long-term funds are open-ended investments that invest in bonds (generally in government and corporate bonds) with longer maturities. These long-duration funds come with a higher risk and can offer higher returns than medium-term funds in a falling interest rate scenario. These funds do not have a predetermined maturity date, and the lack of a lock-in period can lead to high liquidity. 

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