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
legendary 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 to 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
HDFC Index Fund Nifty 50 Plan or ICICI Pru Nifty Index Fund
HDFC Nifty 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
Canara Robeco Bluechip Equity Fund
Large & Mid Cap Funds
Mirae Asset 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:
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.
Mid Cap Funds
The probability of generating alpha is high in the case of midcap
funds, however, they also carry a 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:
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:
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:
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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