Best Mutual Funds to invest for 20 years

Mutual funds are one of the most popular investment options which can help investors achieve their financial goals. These days, people are becoming progressively more aware of the potential growth offered by mutual fund schemes.

You can opt for either long-term or short-term investments depending on your financial goals. Investing for the long term has its merits. It reduces the risk of market volatility, and the compounding of returns helps generate more wealth over the years.

In this blog, we will discuss long-term investments and the best mutual funds to invest in for 20 years in India.

What Are Long-Term Investments?

Long-term, medium-term and short-term investments are the three main types of investments based on tenure. Short-term investments in mutual funds usually have a tenure of three years or less. Their goal is to generate higher returns than a savings account or a Fixed Deposit (FD). Short-term investment goals include going on a trip, buying a new vehicle, etc. Medium-term investments have a tenure of around 3-5 years. 

Investments are considered long-term when the holding period is more than five years. The purpose of long-term investments is to build wealth. In addition, they help investors achieve major goals such as purchasing property, children’s education, retirement planning, etc. Equity-based mutual funds are considered a good option for investing in the long term.

Also Read: Best Mutual Funds to Invest for 20 Years

Best Mutual Funds to Invest for 20 Years

For individuals interested in long-term investment, the following is a curated list of the ten best mutual funds for 20 years investment horizon:

Which Mutual Funds Are Best for Long-Term Investments?

Equity-based funds such as small cap, mid cap, large cap, multi-cap, and ELSS (Equity Linked Saving Scheme) invest a minimum of 65% of their assets in equities. These are considered some of the best mutual funds to invest in for 20 years.

Since they invest in the stock market, they are subject to risks associated with it. Some factors which affect the fluctuation of stock prices include inflation, interest rates, exchange rates, government and economic policy changes, etc. However, even though these factors affect stock prices, equity-based mutual funds have historically delivered substantial returns over a long-term investment period.

Equity is an asset class that gives investors part ownership of a company. When companies perform well, it leads to higher profits for the company, which in turn leads to a rise in the share’s price. If a business has solid fundamentals, it would likely overcome any challenges and gain its market share.

Equity mutual funds, which invest in shares, give unpredictable returns over the short term. However, over the long term, investments in a range of high-quality companies are very likely to generate substantial returns. This makes them the best type of mutual funds to invest in for as long as 20 years.

There are two investment methods concerning equity funds: SIP (Systematic Investment Plan) and Lump Sum. SIPs are better for the long term since regular investments help in rupee cost averaging and getting good returns.

All long-term investments should also be made with a specific goal in mind. Investments based on financial goals will make it easier to achieve them. In addition, disciplined investing using SIPs enables the achievement of objectives with negligible financial strain.

Also Read: History of the Mutual Funds Industry in India

Who Should Invest in Mutual Funds for 20 Years?

While learning about the best mutual funds to invest in for 20 years, it is important to know your financial goals and if they are suitable for long-term investment.

Investors usually make long-term investments for long-term financial goals such as purchasing a new house, planning retirement, saving up for a child’s education, etc. Therefore, long term investing is a good choice for investors with the following objectives:

• Investors who want to invest regularly: Investors can invest money in long-term mutual funds at regular intervals via SIP mode. SIPs are suitable for long-term investment since they benefit from certain factors such as compound interest and rupee cost averaging. 

Hence, individuals who are looking to invest in funds regularly can consider long-term investment plans for as long as 20 years.

• Investors seeking higher returns than FDs: Traditional savings options such as FDs offer financial gains at a fixed interest rate. However, they may not be enough to catch up with inflation rates. While investing in mutual funds carries certain risks, investing in them over the long term generates higher returns than FDs.
• Investors with specific long-term goals: Every person has different objectives when it comes to investing. While short-term investments can fulfil some objectives, they cannot fulfil others. For example, objectives such as a trip next year can be fulfilled by short-term investments. Whereas, if someone wants to purchase a house, they would need to invest for the long term.

Read More : Best Large Cap Mutual Fund to Invest in 2022

Benefits of Investing in Mutual Funds for the Long Term

Investing in mutual funds for the long term comes with benefits. Some of its benefits are:

• The power of compounding: Compounding, in simple terms, means interest upon interest. Therefore, it can help investors benefit from substantial gains in the long term. When you invest in mutual funds for 20 years or more, there will be considerable growth in the investment. This helps investors in achieving their long-term goals.
• Financial readiness and independence: Long-term investing helps people prepare for their future financial goals. Once investors are clear about their financial goals, they can decide their investment horizon and be financially prepared for the future.
• Reduces future financial burden: Expenses such as marriage, education and retirement can be quite expensive. Investing in the long term helps reduce the financial burden on investors.
• Helps in balancing out risks: Market fluctuations during the short term can be quite high. On the other hand, long-term investments are less affected by such volatility, providing the potential for better returns. Thus, long-term investments in mutual funds provide better stability than short-term investments.

Discover More: Best Mutual Funds for Long Term Investment

Things to Consider before Investing in a Mutual Fund for 20 Years

Investing for the long term is a huge financial commitment. Therefore, you should consider these important factors while choosing the best mutual funds to invest in for 20 years:

• Fund’s asset allocation: Mutual funds’ portfolios basically consist of financial assets such as stocks, government bonds, money market instruments, etc. These assets come with different risks and expected returns. Hence, it is important for investors to take a look at the fund’s portfolio when investing for the long term.
• Fund manager’s experience: A fund’s performance heavily relies on the strategy of the fund’s manager. It is crucial to analyse the fund managers’ track record and experience before making an investment in their fund for a long tenure. One should look for a fund manager who has delivered consistent performance.
• Expense ratio: The expense ratio is a fee associated with mutual funds. It is charged for the management and administration of the fund. It is usually 0.5 – 2.25% of the fund’s NAV (Net Asset Value) and is usually high for actively managed funds. A lower expense ratio results in significantly more profits being realised in the long term.
• Risk appetite: There are various risks associated with investing in mutual funds. You should assess your risk tolerance before making an investment. Long-term investments are suitable for those who understand and accept the risks. An individual who is concerned about short-term market volatility should avoid long-term mutual funds.
• Personal financial situations: You should keep in mind your personal circumstances and consider them before investing for the long term. This can include age, income level, financial obligations, etc. You should always keep an emergency fund in case of unforeseen situations.
• Regular/direct plans: You can invest in mutual funds via either a regular plan or a direct plan. As there is no intermediary for direct plans, you can benefit from the lower expense ratios. However, you have to manage your own investments in this case.

Also Read: How to Invest in Mutual Funds Online – Complete Guide

Why Are SIPs Suitable for Long-Term Investments?

SIPs are fixed investments made in regular intervals (monthly, quarterly, semi-annually, etc.) in mutual funds, and they are considered suitable for long-term investments.

These are some of the benefits of long-term investments via SIPs:

• Rupee cost averaging: Since payments made through SIPs are spread throughout your investment tenure, the NAV at which units are bought keeps fluctuating. With rupee cost averaging, you get to acquire more units when the markets are down and less when the markets are up. This balances out the effects of short-term market volatility.
• Affordability: Long-term investments are a huge commitment. Affordability is an important factor when it comes to investing. Individuals can start SIPs with monthly payments as low as Rs. 100. This makes it an easy way to invest for the long term.
• Exceptional returns: Since SIPs benefit from the power of compounding, this helps you accumulate a large amount of money at the end of the investment tenure. For example, an investment of Rs. 1,00,000 per annum with a 12% rate of return can accumulate absolute returns of 76% in 5 years through compounding.

Also Read: How to Stop Mutual Fund SIP? | SIP Cancellation Online

Taxation of Long-Term Investments in Mutual Funds

The tax on capital gains earned from a mutual fund depends upon the mutual fund’s holding period. The holding period is the duration of time between the purchase date and the sale date of fund units. Therefore, there are different tax rates for long-term and short-term investments.

For tax purposes, holding periods of 12 months and more lead to long-term capital gains (LTCG) for equity funds. Over a tax-free threshold of Rs. 1 lakh, LTCG is taxed at a rate of 10%.

For non-equity funds and investments, a long-term horizon is considered 36 months and more. LTCG from such funds is taxable at 20% with indexation.

Also Read: Best Long-Term Investment Plans in India

Final Word

Long-term investments require patience and resilience. While it is not suited for everyone, it can help you acquire substantial gains with lower financial burdens. 

An investment horizon of 20 years is considered ideal for the long term. It also reduces the risks associated with investing in mutual funds. 

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