Introduction
Investing in mutual funds is one of the most popular and convenient ways to create wealth in the long term. Mutual funds are professionally managed pools of money that invest in various securities such as stocks, bonds, gold, etc. depending on the fund’s objective and strategy. By investing in mutual funds, you can benefit from the expertise of fund managers, diversify your portfolio, and enjoy the power of compounding.
However, not all mutual funds are suitable for every investor. You need to consider your risk profile, investment horizon, and financial goals before choosing the best mutual funds for you. In this blog, we will focus on the best mutual funds to invest for 20-25 years in India.
This is a long-term investment horizon that can help you achieve your life goals such as retirement, children’s education, or buying a house. We will also discuss the factors that you should look for when selecting the best mutual funds for long-term investing.
Factors to Consider When Choosing the Best Mutual Funds for Long-Term Investing
- Performance: Past performance is not a definitive predictor of future returns, yet it provides valuable insights into a fund's consistency across market cycles. Analysing returns over 5-10 years, comparing with benchmarks and category averages, and evaluating risk-adjusted returns with metrics like Sharpe ratio, Sortino ratio, or alpha are essential steps.
- Risk: Different mutual funds carry varying levels of risk based on underlying assets, strategy, and market conditions. Assess your own risk appetite and tolerance. Examine standard deviation, beta, and maximum drawdown to gauge volatility and downside risk.
- Expense Ratio: The annual fee impacts net returns. Seek funds with a low expense ratio compared to peers and category average, while prioritising quality and performance.
- Fund Size: Optimal fund size is crucial, avoiding extremes that can pose challenges for fund managers. Look for funds that strike a balance between popularity and manageability.
- Fund Manager: A competent and experienced fund manager is instrumental in a fund's performance. Stability, a long tenure, and consistent results are vital indicators to consider.
10 Best Mutual Funds To Invest For 20-25 Years
Based on these factors, we have shortlisted some of the best mutual funds to invest for 20-25 years in India across different categories such as large-cap funds, mid-cap funds, small-cap funds, multi-cap funds, index funds, etc. These are some of the top-performing mutual funds from all the categories that have delivered high returns with low risk over a long period of time.
ICICI Prudential Bluechip Fund: This fund invests in companies that are among the top 100 by market capitalization and have a strong competitive advantage and growth potential. The fund follows a blend of growth and value investing styles and has a diversified portfolio across sectors such as financials, technology, energy, etc. The fund has delivered an annualised return of 15.32% since its inception in 2008 and has outperformed its benchmark (Nifty 100 TRI) and category average over various time periods.
Mirae Asset Large Cap Fund: This fund invests in companies that are among the top 100 by market capitalization and have a sustainable business model and profitability. The fund follows a growth-oriented approach and has a concentrated portfolio of around 50-60 stocks. The fund has delivered an annualised return of 17.01% since its inception in 2008 and has outperformed its benchmark (Nifty 100 TRI) and category average over various time periods.
Axis Midcap Fund: This fund invests in companies that are among the top 101-250 by market capitalization and have a strong competitive edge and scalability. The fund follows a bottom-up stock selection process and has a focused portfolio of around 30-40 stocks. The fund has delivered an annualised return of 19.82% since its inception in 2011 and has outperformed its benchmark (Nifty Midcap 100 TRI) and category average over various time periods.
DSP Midcap Fund: This fund invests in companies that are among the top 101-250 by market capitalization and have a sustainable growth potential and profitability. The fund follows a blend of growth and value investing styles and has a diversified portfolio across sectors such as consumer goods, chemicals, engineering, etc. The fund has delivered an annualised return of 18.64% since its inception in 2006 and has outperformed its benchmark (Nifty Midcap 100 TRI) and category average over various time periods.
Quant Small Cap Fund: This fund invests in companies that are among the top 501-1000 by market capitalization and have a strong competitive edge and scalability. The fund follows a quantitative model based on factors such as quality, value, momentum, size, etc. to select stocks. The fund has delivered an annualised return of 28.47% since its inception in 2013 and has outperformed its benchmark (Nifty Smallcap 100 TRI) and category average over various time periods.
SBI Small Cap Fund: This fund invests in companies that are among the top 501-1000 by market capitalization and have a sustainable growth potential and profitability. The fund follows a bottom-up stock selection process and has a diversified portfolio across sectors such as consumer goods, industrials, chemicals, etc
The fund has delivered an annualised return of 18.29% since its inception in 2007 and has outperformed its benchmark (Nifty Smallcap 100 TRI) and category average over various time periods.
Parag Parikh Flexi Cap Fund: This fund invests in companies across market capitalization and sectors that have a strong competitive edge, high return on capital, and low debt. The fund also invests up to 35% of its assets in foreign companies that have a global presence and growth potential. The fund follows a value-oriented approach and has a focused portfolio of around 25-30 stocks. The fund has delivered an annualised return of 21.01% since its inception in 2013 and has outperformed its benchmark (Nifty 500 TRI) and category average over various time periods.
UTI Flexi Cap Fund: This fund invests in companies across market capitalization and sectors that have a sustainable growth potential, profitability, and quality. The fund follows a growth-oriented approach and has a diversified portfolio of around 80-100 stocks. The fund has delivered an annualised return of 16.88% since its inception in 1999 and has outperformed its benchmark (Nifty 500 TRI) and category average over various time periods.
ICICI Prudential Nifty Next 50 Index Fund: This fund replicates the performance of the Nifty Next 50 index, which consists of the next 50 largest companies after the Nifty 50 index. These companies are usually emerging players with high growth potential and innovation capabilities. The fund has delivered an annualised return of 15.75% since its inception in 2010 and has outperformed its benchmark (Nifty Next 50 TRI) over various time periods.
HDFC Sensex Fund: This fund replicates the performance of the Sensex index, which consists of the top 30 companies by market capitalization from different sectors. These companies are usually well-established and have a proven track record of performance. The fund has delivered an annualised return of 14.76% since its inception in 2002 and has outperformed its benchmark (Sensex TRI) over various time periods.
Conclusion
Investing in mutual funds for 20-25 years can help you create wealth and achieve your long-term financial goals. However, you need to choose the best mutual funds for your risk profile, investment horizon, and financial goals. You also need to diversify your portfolio across different categories and sectors of mutual funds to reduce your risk and optimise your returns.
Disclaimer
The investment options and stocks mentioned here are not recommendations. Please go through your own due diligence and conduct thorough research before investing. Investment in the securities market is subject to market risks. Please read the Risk Disclosure documents carefully before investing. Past performance of instruments/securities does not indicate their future performance. Due to the price fluctuation risk and the market risk, there is no guarantee that your personal investment objectives will be achieved.