How are these the Best Equity Mutual Funds to Invest for Long Term in 2022-2023?

 

Every year we got numerous mutual fund recommendations for investments. As Most of the recommendations are based on recent fund performance, hence every year new funds are recommended, and that too for long-term investment. The Frequent churning of mutual fund portfolios affects the overall returns. In the words of legendry investor Charlie Munger

The big money is not in buying and selling but in waiting

It also holds in the case of mutual fund investments. If we buy and sell mutual funds every year based on recommendations we shall not be able to generate long-term wealth.



 

The most important thing if you are traveling in a vehicle for a long journey is the experience of the driver. In the case of the journey of investing, you are the driver if you are investing in direct equity while the fund manager is the driver if you are investing through mutual funds. Hence, your success depends upon the experience of the fund manager.

The right way to invest is to identify mutual funds based on one’s risk profile and understand the investment philosophy of the fund manager. A fund may underperform other funds of the same category or even the underlying index due to the certain investment decisions of the fund manager which could lead to short-term underperformance but long-term outperformance.

Some fund managers practice the “Value Investing” style of investing where short-term returns may even lag the underlying index. Some examples are the HDFC FlexiCap fund and Parag Parikh FlexiCap Fund.

In this article, we shall be discussing some of the best mutual funds for long-term investments considering the quality & experience of fund managers, and philosophy of mutual fund houses, etc. We shall be suggesting the funds one may consider for long-term investment in various categories, however, we are of the view that most investors may generate good returns by investing in large-cap funds (mainly index funds) with some exposure of funds under the “Flexicap” Category.

The ELSS funds which have some similarities with the “Flexicap” category may be considered for tax benefits along with long-term wealth generation.


Large Cap Funds 

We are of the view that passive funds are the best option if one wants to invest in large-cap funds. It is very difficult for fund managers to continuously beat the index in long run. Further, the investors keep on churning mutual fund portfolios based on recent performance which leads to deterioration of returns.

The funds from the category that may be considered for investment are:

Passive Funds

HDFCIndex Fund Nifty 50 Plan or ICICI Pru Nifty Index Fund

HDFCNifty 50 Equal Weight Index fund

(In the case of passive funds one may consider the funds of the same category offered by other fund houses as they all follow the same index and returns are almost in the same range.)

Active Funds

Miraeasset Large Cap Fund

CanaraRobeco Bluechip Equity Fund

 

Large & Mid Cap Funds

MiraeAsset Emerging BlueChip Fund

The Lumpsum investment in the fund has been restricted and an investor can invest only through SIP mode to a maximum of Rs. 2500 per month. You may also check the detailed review of the fund below.

Mirae asset emerging blue-chip fund (MAEBF) - A consistent performer in Large & Midcap category.

 

Flexi Cap funds

The funds from the category that may be considered for investment are:

ParagParikh FlexiCap fund

UTI FlexiCap Fund

DSP FlexiCap Fund

Parag Parikh Flexicap fund invests 35% of AUM in foreign Equity, the fund may be considered if one is interested in taking some exposure in overseas markets as well. You may also check the detailed review of the fund below.

Parag Parikh Flexi Cap fund (erstwhile Parag Parikh Long Term Equity Fund)- A tortoise that has beaten many hares


Mid Cap Funds

The probability of generating alpha is high in the case of midcap funds, however, they also carry the higher risk. The conservative investors must invest in the funds under the large-cap category only with some exposure to Flexicap funds. Investors with a moderate risk profile may consider part investment in Mid Cap Category. The funds from the category that may be considered for investment are:

AxisMidcap Fund

MiraeAsset Midcap Fund

 

Small-Cap funds

These funds carry high risk with high return potential. Investors with an aggressive risk profile may consider investing part investment in these funds. The funds from the category that may be considered for investment are:

KotakSmall Cap Fund

AxisSmall Cap Fund

SBISmall Cap Fund

 

ELSS Funds (Tax Saver Funds)

These funds provide the dual benefit of tax saving under section 80 C along with capital appreciation. The funds from the category that may be considered for investment are: 

MiraeAsset Tax Saver Fund

ParagParikh Tax Saver Fund

QuantTax Plan

 

Following Should be kept in mind while investing

The investment should be done for the long term based on one’s risk profile. The minimum time frame for investment in equity mutual funds should be 7 years.

The investor should keep in mind that there shall be short-term volatility, hence a Systematic Investment Plan (SIP) is the best way to invest. Increase the SIP every year. Further, keep some money for lump-sum investments during the period of a market downturn.

Avoid looking at the NAVs on daily basis. Invest in mutual funds to achieve long-term goals. Let compounding do its job.

Don’t switch funds after one year of underperformance. Read fund house communications, Fund manager interviews, investment objectives, etc to understand the reason for underperformance. Don’t buy too many funds. It may reduce the portfolio returns.

While investing through a mutual fund advisor make sure that he is working in your interest and not for his gains only. If a mutual fund advisor is telling you to invest in a fund only because the NAV of the fund is low, avoid him.

If you are investing yourself, Invest in “Direct- Growth” funds only.

Disclaimer: Our team has analyzed various factors while suggesting the mutual funds as above, however, there may be some unknown risks. The investors shall consult their financial advisors before making investment decisions.

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