Mutual Funds are a great investment option for people who wish to grow their money over a period of time. Whether investors are looking for capital gains or seeking regular income, they can choose to invest in a wide range of mutual funds.

From the long-term perspective, it is advisable to create a portfolio of mutual funds using a top-down approach, which includes first arriving at an optimal asset allocation based on one’s risk tolerance, and then selecting funds to match one’s risk-reward investment plan.

Read More: 10 Tips on investing in Mutual Funds

The biggest advantage of investing through a mutual fund is that it gives small investors access to professionally managed, diversified portfolios of equities, bonds and other securities, which would be quite difficult to create with a small amount of capital.

Many new investors are flocking to mutual funds these days. The ever ballooning Assets Under Management (AUM) of mutual funds reflects the trend. However, many investors find it difficult to put together a few schemes that would help them to meet their various long-term financial goals. So, let’s look into the 10 best mutual funds for long-term investment planning.


10 Best Mutual Funds for Long-Term Investments - At a glance
Fund Name 1Y 3Y 5Y Category Risk
L&T Emerging Businesses Fund - Direct - Growth -8.08% 19.29% NA Equity
(Small Cap)
High
Reliance Small Cap Fund - Direct - Growth -5.25% 16.41% 32.22% Equity
(Small Cap)
Moderately High
HDFC Small Cap Fund - Direct - Growth 1.38% 18.72% NA Equity
(Small Cap)
Moderately High
SBI Small Cap Fund - Direct - Growth -9.02% 16.93% NA Equity
(Small Cap)
Moderately High
Sundaram Small Cap Fund - Direct - Growth -22.84% 4.72% 23.08% Equity
(Small Cap)
Moderately High
Canara Robeco Emerging Equities - Direct - Growth -3.93% 14.38% 29.29% Equity
(Large & Mid Cap)
Moderately High
L&T Midcap Fund - Direct - Growth -8.82% 15.6% 27.23% Equity
(Mid Cap)
High
Aditya Birla Sun Life Pure Value Fund - Direct - Growth -16.69% 12.21% 25.51% Equity
(Value)
Moderately High

Short-term investments are usually those that need to be liquidated within a 3 year period, whereas, any investment held for over 5 years is considered as a long-term investment.

Small and Mid-cap funds are ideal for investing for longer durations in a mutual fund.

Investment in mid cap funds which carry higher risk, than large cap funds, but can also be very rewarding in the long term. The risk quotient rises significantly in small cap funds, but so do the returns.

The top small cap funds have generated over 40% annualized returns in the past one years.

Here’s the list of 10 best Mutual Funds for long term investment:

1.L&T Emerging Businesses Fund

This is a Small Cap Equity Oriented Mutual Fund launched in May 12, 2014. It is a fund with high risk and have given a return of 30.98 % since its launch.

Invest in L&T Emerging Businesses Fund Now

  • This fund has been rated as a 5 star fund by Groww.
  • AUM of close to ₹ 3587 Cr.
  • Age is nearly 3 years. So its performance can be difficult to judge on longer run. Though its a relatively new fund, it has made its mark with high return on investment.
  • Has consistently outperformed its benchmark S&P BSE Small Cap since its launch.
  • The top portfolio holdings of the fund include Sobha Ltd., CBLO ( CCIL ), Rane Holdings Ltd., Aarti Industries Ltd., Future Supply Chain Solutions Ltd., Dilip Buildcon Ltd., IPCA Laboratories Ltd., Nocil Ltd. etc.
  • The holdings are balanced across various sectors with maximum weightage given to Industrial Manufacturing ( 20.1 % ) followed by Financial Services ( 16 % ) and Consumer Goods ( 8.9 % )

  • Minimum SIP = ₹ 500
  • Equity share = 85.9 % , Debt share = 0 % and Cash = 14.1%

  • Large Cap share = 1 % , Mid Cap share = 58.5 % and Small Cap share = 40.9%

Check out the best small-cap funds that you can consider investing in

2.Reliance Small Cap Fund

This is a Small Cap Equity Oriented Mutual Fund launched on September 16, 2010. It is a fund with high risk and has given a return of 22.74 % since its launch.

Invest in Reliance Small Cap Fund Now

  • This fund has been rated as a 5 star fund by Groww.
  • AUM of close to ₹ 6371 Cr.
  • Age is nearly 7 years. So its performance can be easily judged.
  • Has consistently outperformed its benchmark S&P BSE Small Cap since its launch.
  • The top portfolio holdings of the fund include Navin Fluorine International Ltd., Deepak Nitrite Ltd., Aditya Birla Finance Ltd. ( 91D ), V I P Industries Ltd., RBL Bank Ltd., Cyient Ltd., CBLO ( CCIL ) etc.
  • The holdings are balanced across various sectors with maximum weightage given to Consumer Goods ( 21.7 % ) followed by Industrial Manufacturing ( 15.1 % )

  • Minimum SIP = ₹ 100
  • Equity share = 93 % , Debt share = 0 % and Cash = 7 %

  • Large Cap share = 5.4 % , Mid Cap share = 46.4 % and Small Cap share = 48%

Reliance Small Cap Fund: Is this the right small-cap fund for you?

3.HDFC Small Cap Fund

This is a Small Cap Equity Oriented Mutual Fund launched in April 03, 2008. It is a fund with high risk and have given a return of 16.60 % since its launch.

Invest in HDFC Small Cap Fund Now

  • This fund has been rated as a 5 star fund by Groww.
  • AUM of close to ₹ 2152 Cr.
  • Age is nearly 10 years. So its performance can be easily judged.
  • Has consistently outperformed its benchmark Nifty Free Float Small cap 100 since its launch.
  • The top portfolio holdings of the fund include Sonata Software Ltd., CBLO ( CCIL ), Redington India Ltd., Aarti Industries Ltd., KEC International Ltd., Dilip Buildcon Ltd., Balkrishna Industries Ltd. etc.
  • The holdings are balanced across various sectors with maximum weightage given to Industrial Manufacturing ( 15.1 % ) followed by Automobile ( 14.7 % ) and IT ( 11.5 % )

  • Minimum SIP = ₹ 500
  • Equity share = 85.9 % , Debt share = 0 % and Cash = 14.1%.

  • Large Cap share = 1 % , Mid Cap share = 58.5 % and Small Cap share = 40.9%

4.Mirae Asset Emerging Bluechip Fund

This is a  Mid Cap Equity Oriented Mutual Fund launched in July 9, 2010. It is a fund with moderately high risk and has given a return of 23.40 % since its launch.

Invest in Mirae Asset Emerging Bluechip Fund Now

  • This fund has been rated as a 5-star fund by Groww.
  • AUM of close to ₹ 5364 Cr.
  • Age is nearly 7 years. So its performance can be easily judged.
  • Has consistently outperformed its benchmark Nifty Free Float Midcap 100 since its launch.
  • The top portfolio holdings of the fund include Tata Global Beverages Ltd., ICICI Bank Ltd., Kotak Mahindra Bank Ltd., Raymond Ltd., HDFC Bank Ltd., Federal Bank Ltd., Info Edge Ltd., IndusInd Bank Ltd., Ceat Ltd. etc.
  • The holdings are balanced across various sectors with maximum weightage given to Financial Services ( 25.9 % ) followed by Consumer Goods ( 12.8 % )

  • Minimum SIP = ₹ 1000
  • Equity share = 98.8 % , Debt share = 0.1 % and Cash = 1.1 %

  • Large Cap share = 36.8 % , Mid Cap share = 57.6 % and Small Cap share = 5.6%.

 

Here are 5 steps to reduce losses while investing in small-cap funds

5.Aditya Birla Sun Life Small Cap Fund

This is a fund  waslaunched in May 31, 2007. It is a fund with high risk and have given a return of 14.24 % since its launch.

Invest in Aditya Birla Sun Life Small & Midcap Fund Now

  • This fund has been rated as a 5 star fund by Groww.
  • AUM of close to ₹ 1866 Cr.
  • Age is nearly 10 years. So its performance can be easily judged.
  • Has consistently outperformed its benchmark Nifty Free Float Midcap 100 since its launch.
  • The top portfolio holdings of the fund include Cyient Ltd., CBLO ( CCIL ), Chennai Petroleum Corporation Ltd.etc., DCB Bank Ltd., Gujarat State Petronet Ltd., KEC International Ltd., PNC Infratech Ltd. etc.
  • The holdings are balanced across various sectors with maximum weightage given to Financial Services ( 20.1 % ) followed by Construction ( 13 % ) and Consumer Goods ( 12.1 % )

  • Minimum SIP = ₹ 1000
  • Equity share = 84.9 % , Debt share = 0 % and Cash = 15.1%

  • Large Cap share= 0 % , Mid Cap share = 70.8 % and Small Cap share = 29.2 %

Find out why investing in small-cap mutual funds through SIP is right for you

6.L&T Midcap Fund 

This is a Mid Cap Equity Oriented Mutual Fund launched in August 09, 2004. It is a fund with high risk and have given a return of 21.75 % since its launch.

Invest in L&T Midcap Fund Now Fund Now

  • This fund has been rated as a 5-star fund by Groww.
  • AUM of close to ₹ 1323 Cr.
  • Age is nearly 13 years. So its performance can be easily judged.
  • Has consistently outperformed its benchmark Nifty Free Float Midcap 100 since its launch.
  • The top portfolio holdings of the fund include Mphasis Ltd., CBLO ( CCIL ), The Ramco Cements Ltd., Emami Ltd., Mindtree Ltd., Engineers India Ltd., Jindal Steel and Power Ltd., Sundaram Finance Ltd. etc.
  • The holdings are balanced across various sectors with maximum weightage given to Financial Services ( 18.5 % ) followed by Construction ( 13.5 % ) and Industrial Manufacturing ( 12.5 % )

  • Minimum SIP = ₹ 500
  • Equity share = 86.6 % , Debt share = 0 % and Cash = 13.4 %

  • Large Cap share= 14.8 % , Mid Cap share = 79.2 % and Small Cap share = 6 %

7.SBI Small Cap Fund

This is a Small Cap Equity Oriented Mutual Fund launched in September 09, 2009. It is a fund with high risk and have given a return of 23.25 % since its launch.

Invest in SBI Small & Midcap Fund Now

  • This fund has been rated as a 4 star fund by Groww.
  • AUM of close to ₹ 943 Cr.
  • Age is nearly 8 years. So its performance can be easily judged.
  • Has consistently outperformed its benchmark S&P BSE Small Cap since its launch.
  • The top portfolio holdings of the fund include Westlife Development Ltd., Kirloskar Oil Engines Ltd., LT Foods Ltd., Relaxo Footwear, Elgi Equipments Ltd., Tamil Nadu Newsprint & Papers Ltd., Hawkins Cooker Ltd. etc.
  • The holdings are balanced across various sectors with maximum weightage given to Consumer Goods ( 23.7 % ) followed by Industrial Manufacturing ( 17.8 % ) and Services ( 14 % ).

  • Minimum SIP = ₹ 1000
  • Equity share = 95.4 % , Debt share = 0.5 % and Cash = 4.1 %

  • Large Cap share= 0 % , Mid Cap share = 43.3 % and Small Cap share = 56.7 %

8.Sundaram Smal Cap Fund

This is a Small Cap Equity Oriented Mutual Fund launched in February 15, 2005. It is a fund with high risk and have given a return of 19.68 % since its launch.

Invest in Sundaram SMILE Fund Now

  • This fund has been rated as a 4 star fund by Groww.
  • AUM of close to ₹ 1481 Cr.
  • Age is nearly 7 years. So its performance can be easily judged.
  • Has consistently outperformed its benchmark S&P BSE Small Cap since its launch.
  • The top portfolio holdings of the fund include Navin Fluorine International Ltd.,Rane Holdings Ltd., J K Cement Ltd., V-Guard Industries Ltd., Heritage Foods Ltd., ITD Cementation India Ltd., NRB Bearings Ltd. etc.
  • The holdings are balanced across various sectors with maximum weightage given to Industrial Manufacturing ( 19.3 % ) followed by Construction ( 13 % ) and Financial Services ( 12.8 % ).

  • Minimum SIP = ₹ 1000
  • Equity share = 98.7 % , Debt share = 0 % and Cash = 1.3 %

  • Large Cap share= 0 % , Mid Cap share = 60.3 % and Small Cap share = 39.7 %

Also, check out the best 5 mid-cap funds to invest in 2018 (after re-categorization)

9.Canara Robeco Emerging Equities

This is a Mid Cap Equity Oriented Mutual Fund launched in March 11, 2005. It is a fund with high risk and have given a return of 18.85 % since its launch.

Invest in Canara Robeco Emerging Equities Fund Now

  • This fund has been rated as a 4 star fund by Groww.
  • AUM of close to ₹ 3208 Cr.
  • Age is nearly 12 years. So its performance can be easily judged.
  • Has consistently outperformed its benchmark Nifty Free Float Midcap 100 since its launch.
  • The top portfolio holdings of the fund include CBLO ( CCIL ), Reliance Industries Ltd., Bajaj Finserv Ltd., Minda Industries Ltd., Container Corporation Of India Ltd., Piramal Enterprises Ltd., ITC, Atul Ltd. etc.
  • The holdings are balanced across various sectors with maximum weightage given to Consumer Goods ( 14.5 % ) followed by Financial Services ( 13.8 % ) and Automobile ( 11.9 % )

  • Minimum SIP = ₹ 1000
  • Equity share = 96.4 % , Debt share = 0 % and Cash = 3.6 %

  • Large Cap share = 46.1 % , Mid Cap share = 47.2 % and Small Cap share = 6.7%.

10.Aditya Birla Sun Life Pure Value Fund

This is a Mid Cap Equity Oriented Mutual Fund launched in March 27, 2008. It is a fund with high risk and have given a return of 20.61 % since its launch.

Invest in Aditya Birla Sun Life Pure Value Fund Now

  • This fund has been rated as a 4 star fund by Groww.
  • AUM of close to ₹ 1456 Cr.
  • Age is nearly 9 years. So its performance can be easily judged.
  • Has consistently outperformed its benchmark S&P BSE 200 since its launch.
  • The top portfolio holdings of the fund include Hindustan Petroleum Corporation Ltd., Gujarat Alkalies & Chemicals Ltd., Tata Global Beverages Ltd., Tata Chemicals Ltd., CBLO ( CCIL ), Steel Authority of India Ltd. etc.
  • The holdings are balanced across various sectors with maximum weightage given to Energy ( 19.1 % ) followed by Chemical ( 15.2 % ) and Consumer Goods ( 11.1 % )

  • Minimum SIP = ₹ 1000
  • Equity share = 95.3 % , Debt share = 0.5 % and Cash = 4.2 %

  • Large Cap share= 27.1 % , Mid Cap share = 60.7 % and Small Cap share = 12.2 %

Benefits of Staying Invested in Mutual Funds for Long Term

The flexibility provided by mutual funds as an investment option is near unparallel as you not only get the option of making solid investments for both the short term as well as the long term.

But invest for long term , an advice routinely given by many mutual fund distributors and investment advisors. This is especially true in case of equity mutual funds.

The equity mutual fund investments provide return fluctuations in the short run, but they are the ones which tend to generate solid capital growth in the long run period.

Time plays an essential role in making the best choice of investment strategy. When the money is invested for a longer duration, the market faces various ups and downs leading to fluctuations in the returns, but as per the law of averages the overall returns are managed and evened out to create long term wealth.

You can also read: Have you tried investing the Warren Buffet way?

Also, in the long run, the fund managers get adequate time to make adjustments in the portfolio in order to bring the best returns while grabbing the greatest opportunity. As the funds are not redeemed shortly, they get enough time to earn wealth as desired.

And lastly, staying invested in a mutual fund for a longer period of time has been beneficial to the investor as one can get the benefit from the power of compounding. Compounding, of course, works best when one stays invested over a longer period of time.

Conclusion

Small and mid cap funds are highly risky funds and are best suitable for investment for longer duration. They yield high return on investment as compared to other equity oriented mutual funds.

For the first time investors who want to get exposure to the Indian equity markets, it would be advisable to invest through a Systematic Investment Plan (SIP) rather than making lump sum investments.

Here is a major reason why SIPs can make you rich

SIP investment would ensure that even if the market corrects in the short term, the effect of rupee cost averaging will reduce the overall effect of the markets. In an SIP instead of a lump sum, the investment is done regularly on specific intervals.

Read More : 13 Things to Know About SIP.

It is one of the best ways to invest and tested method of minimizing risk and yet enjoying good returns, by regular, periodic investment, over a long horizon.

Things to Remember

Don’t just run for returns from investment for investing in mutual funds. There are a lot of factors you should look into before selecting a fund which will match your investment goals.

Following the 3 things you should always remember before investing in Mutual Funds :

  • Higher rates : don’t blindly invest in the fund with the highest returns. Invest based on the duration you want to invest for.
  • Every person’s financial condition is different. Evaluate the funds you invest in yourself – don’t invest in a fund because of its popularity.
  • Review your investment from time to time but not too often. Once a few weeks is good enough.

To ensure that the fund is in good hands, choose a fund house having fund manager with good amount of experience managing small/mid cap funds and associated with these funds for some good numbers of years.

To look at some of the best performing funds from every category of mutual funds, check out – Best mutual funds to invest in 2019

Happy Investing!

Disclaimer: the views expressed here are of the author and do not reflect those of Groww.