Best Mutual Funds for the Next 10 Years

May 28, 2024 / Reading Time: Approx. 10 mins

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Best Mutual Funds for the Next 10 Years

The Indian equity market presents a compelling landscape for long-term wealth creation. With a burgeoning economy, demographics favouring consumption, and increasing digital adoption, the potential for robust growth seems well-founded.

However, the equity market has witnessed significant volatility in recent times. Global headwinds like rising inflation, tightening monetary policies by major central banks, and geopolitical tensions have impacted investor sentiment. Domestic factors like rising commodity prices, impact of general elections (the market typically reacts favourably to policy continuity and stability) and potential fluctuations in the upcoming monsoon season also add layers of complexity.

The Indian equity market currently finds itself in a balancing act, navigating both positive growth prospects and looming uncertainties. While these factors pose challenges, the Indian economy remains on a growth trajectory. Government initiatives aimed at infrastructure development, digitalization, and financial inclusion present opportunities for long-term investors.

[Read: Do General Elections Matter for the Indian Equity Markets]

The market witnessed highs in March 2024, with indices like S&P BSE Sensex breaching 72,000 and Nifty 50 crossing 22,000. However, corrections followed with concerns around global events. As of May 2024, the benchmark S&P BSE Sensex index is indicating a positive year-to-date performance but with some recent volatility. The Nifty 50 index is currently near 23,000, reflecting a similar trend to the S&P BSE Sensex.

Data as of May 28, 2024
(Source: ACE MF, data collated by PersonalFN Research)

The Indian equity market presents a growth story with inherent risks. A 10-year investment horizon allows time to weather market fluctuations and benefit from potential long-term economic expansion. Investors seeking long-term wealth creation must prioritize diversification and a disciplined investment strategy.

This article delves into the current market situation and identifies potential equity mutual funds that could be well-suited for a 10-year investment journey. Choosing the right mutual funds for a 10-year horizon requires a comprehensive analysis. While past performance is not a guarantee of future results, it can provide valuable insights.

Scheme Name Absolute Returns (%) CAGR (%) Risk-Ratios
6 months 1 year 3 years 5 years 7 years 10 years Std. Dev Sharpe Sortino
HDFC Top 100 Fund(G)-Direct Plan 19.10 27.35 18.38 11.39 12.65 15.22 13.39 0.33 0.70
HDFC ELSS Tax saver(G)-Direct Plan 23.19 31.15 19.63 9.89 11.80 15.50 13.00 0.44 0.96
ICICI Pru Multi-Asset Fund(G)-Direct Plan 16.45 25.27 21.96 13.36 14.43 16.98 8.94 0.55 1.22
ICICI Pru Large & Mid Cap Fund(G)-Direct Plan 22.87 30.50 23.92 12.84 13.86 16.69 13.95 0.42 0.91
SBI Contra Fund(G)-Direct Plan 23.66 36.38 30.24 13.49 14.35 17.88 13.10 0.51 1.14
Kotak Emerging Equity Fund(G)-Direct Plan 17.29 29.64 27.08 16.43 19.30 23.30 13.88 0.37 0.75
Quant Small Cap Fund(G)-Direct Plan 33.26 49.93 46.09 17.30 15.88 18.40 20.44 0.40 0.76
Parag Parikh Flexi Cap Fund(G)-Direct Plan 19.75 30.56 25.57 17.65 18.51 20.11 12.52 0.35 0.67
NIFTY 500 - TRI 18.66 24.50 19.50 12.45 13.46 12.79 14.32 0.27 0.56
Nifty Midcap 150 - TRI 24.05 39.45 26.18 14.66 17.06 14.44 16.63 0.36 0.74
Nifty Smallcap 250 - TRI 26.69 44.17 27.38 10.44 13.62 11.99 19.29 0.33 0.61
Data as of May 28, 2024
Do note past performance is not an indicator of future returns
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)

Analysing a mutual fund's performance across market cycles is crucial for making informed investment decisions, especially for a long-term horizon like 10 years. Market cycles encompass both bull (upward) and bear (downward) markets. Evaluating a fund's performance across these cycles reveals its ability to handle volatility.

A fund that consistently performs well during bull markets but experiences significant losses during downturns might not be suitable for a conservative investor. Conversely, a fund that delivers steady, positive returns across cycles, even if the growth isn't spectacular, might be ideal for someone with a lower risk tolerance.

[Read: 8 Top Performing Mutual Funds of 2024 in India Based on 5 Year Rolling Returns]

Do note that, a high-performing fund in a bull market might struggle during a bear market, and vice versa. By looking at a fund's historical performance across cycles, you can get a sense of its long-term sustainability and helps understand how the fund has fared relative to the broader market.

The above mentioned diversified equity mutual fund schemes have been in the market for more than a decade and have witnessed various market cycles. A single year of stellar performance doesn't guarantee future success. Looking at performance across cycles provides a more holistic view of the fund's consistency.

  • Down phase for mutual funds

    The Indian mutual fund industry, like its global counterparts, felt the tremors of the 2008 financial crisis triggered by the collapse of Lehman Brothers. It sent shockwaves through the financial system, leading to a sharp decline in stock markets worldwide. The S&P BSE Sensex plunged over 50% in that year, leading to significant investor losses and dampened sentiment.

    The 2008 crisis triggered investor panic, leading to a surge in redemptions from mutual funds. This exacerbated the market downturn. However, Investors who remained disciplined and held onto their investments saw their portfolios recover as the market rebounded.

    Moreover, the global market crash triggered by the COVID-19 pandemic in March 2020 severely impacted the Indian stock market and, consequently, Indian mutual funds. Even the large-cap funds, invested in established blue-chip companies, witnessed a significant decline during the initial panic selling.

    The March 2020 crash was a global phenomenon, and Indian mutual funds weren't immune to its impact. However, swift government actions like stimulus packages and liquidity injections helped stabilize the market and revive economic activity. Several prudent strategies helped mutual funds navigate this challenging period and pave the way for a subsequent recovery.

    Given that, the equity mutual fund schemes listed above have sustained the market volatility caused due to the financial crisis in 2008 and the global pandemic crisis in 2020. They did witness the 2 major market downturns in the past 10 years and one can easily evaluate the scheme performance based on the trach record and the way the equity mutual funs have recovered.

  • Up phase for mutual funds

    The Indian economy has a proven track record of recovery after periods of downturn it is also known as the 'Pheonix effect'. The 2008 crisis was followed by a period of strong growth, and investors who stayed invested eventually saw their portfolios recover and even surpass pre-crisis levels.

    Mid and Small cap funds were the worst hit during the 2008 crisis. Mid-cap and small-cap companies are typically more vulnerable in economic downturns, and these funds witnessed significant declines, sometimes exceeding 50%. Recovery was also slower due to the longer time it takes for smaller companies to bounce back.

    Compared to the global financial crisis of 2008, the economic downturn in 2020 was relatively short-lived. A remarkable recovery unfolded in the following years, with many funds surpassing their pre-crash levels by 2022. This faster rebound was attributed to factors like a younger population, a growing domestic market, and a focus on digitalization.

    This quicker economic recovery fueled a resurgence in corporate earnings which, in turn, positively impacted the equity market. Some high-growth mid-cap and small-cap companies even outperformed the broader market during the subsequent rally.

Understanding the Power of SIPs

When it comes to investing in equity mutual funds for a long-term goal like a 10-year horizon, Systematic Investment Plans (SIPs) offer a compelling approach. Systematic Investment Plans (SIPs) offer a disciplined and convenient way to invest in mutual funds. By investing a fixed amount at regular intervals, regardless of market fluctuations, SIPs inculcate financial discipline and benefit from rupee-cost averaging.

Market volatility can trigger emotional responses in investors. During downturns, panic selling can lead to hefty losses. SIPs, by their automatic nature, remove emotions from the equation. You continue to invest regardless of market conditions, potentially buying more units at lower NAVs and positioning yourself to benefit once the market rebounds.

To conclude...

Remember, while diversified equity mutual funds generally exhibited resilience during the 2008 and 2020 downturns, their recovery pace wasn't uniform. This variation stemmed from differences in investment strategies and sector allocations. These funds may have employed various tactics like adjusting investment strategies or optimizing asset allocation to navigate the crises. However, past performance doesn't guarantee future success. The 2020 market recovery was certainly encouraging, but future market cycles may unfold differently.

The events of 2008 and 2020 offer valuable lessons for investors navigating the current uncertain market climate in 2024. Although the Indian economy is on a stronger footing today, and the government and RBI are better equipped to handle market volatility. However, the lessons from these downturns serve as a reminder of the importance of a long-term perspective, disciplined investing, and strategic asset allocation in navigating market fluctuations and achieving financial goals.

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.


Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.

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