Best Mutual Funds for Building Long-Term Wealth in 2024

 Investment in equity mutual funds requires a commitment to a fixed tenure to achieve optimal returns and benefits for investors. These funds are particularly effective over the long term, as this allows time for your investments to grow and perform well. In recent years, mutual funds have become increasingly popular for long-term investment due to market trends.

A duration of 5 years or more is typically regarded as long term. Within the mutual fund spectrum, mid cap and small cap funds tend to excel over the long term because these companies often have greater growth potential compared to large cap companies.

Additionally, Equity Linked Saving Schemes (ELSS) are also considered suitable for long-term investments, featuring a mandatory 3-year lock-in period. Therefore, if you aim to achieve higher returns while also saving on taxes, investing in ELSS could be a beneficial strategy.

Best Mutual Funds for Building Long-Term Wealth in 2024

These are the top five mutual funds for long-term investment in 2024.

Fund Name	Aum in (Ten millions)	1 Years Returns	3 Years Returns	3 Years Returns
L&T Midcap fund	₹ 5,992	9.15	8.82	11.04
HDFC Small Cap Fund	₹ 9,232	-4.51	9.41	10.22
Tata Retirement Savings fund Fund	₹ 1,157	12.54	11.49	10.78
Franklin India Small Companies	₹ 6,929	0.33	2.70	7.40
DSP Small Cap Fund	₹ 4,918	9.96	1.47	8.82

(Data as of February 4, 2024; Source- Value Research)

1. L&T Midcap Fund

Midcap funds target companies ranked between the 101st and 250th largest listed in India, representing 15-20% of the nation's total market capitalization. One example is the L&T Midcap Fund, which holds promise for becoming a blue-chip company in the future.

Return	1 Year %	3 Year %	5 Year %
Fund	9.15	8.82	11.04
Bench Mark	10.52	8.28	9.88

If you invest Rs 2,00,000 in this fund for 5 years, the accumulated amount would be Rs 3,37,619, based on a CAGR of 11.04% as of February 4, 2024.

This fund has delivered 11.04% returns over 5 years and 8.82% returns over 3 years, both outperforming its benchmark. Fund managers Soumendra Nath Lahiri and Vihang Naik have achieved these returns by building a diversified portfolio of 84 stocks rather than relying on a few concentrated bets.

The fund’s key investment sectors include finance, construction, healthcare, chemicals, and engineering. Top issuers in the portfolio are City Union Bank, Cholamandalam Investment & Finance, Manappuram Finance, and Jindal Steel & Power.

Investors have a significant opportunity to grow their wealth with this fund. However, it is recommended to commit for at least 7 years for optimal returns.

2. HDFC Small Cap Fund

Small cap funds are generally considered among the most risky investment options. However, this risk diminishes when the investment is held over a longer duration. The HDFC Small Cap Fund aims to support investors in achieving their long-term financial objectives. This fund has consistently outperformed by a significant margin, delivering returns 7% higher than the benchmark over five years and 9% over three years.

Return	1 Year %	3 Year %	5 Year %
Fund	-4.51	9.41	10.22
Bench Mark	0.79	0.84	3.55

If you invest Rs 1,00,000 in this fund for 5 years, the accumulated amount would be Rs 1,62,667, assuming a 10.22% CAGR as of February 4, 2024.

Managed by a professional, the fund targets investments in smaller companies such as NIIT Technology, Sonata Software, INOX Leisure, and DCB Bank for greater growth potential. It focuses on five sectors: services, chemicals, financials, technology, and engineering. By investing in the equity securities of companies with promising future growth, this fund aims to provide consistent long-term profits.

3. Tata Retirement Savings Fund

Return	1 Year %	3 Year %	5 Year %
Fund	12.54	11.49	10.78
Bench Mark	8.68	10.74	7.29

If you invest Rs 2,00,000 in this fund for 5 years, the accumulated amount would be Rs 3,33,685, based on a CAGR of 10.78% as of February 4, 2024.

The fund allocates investments to sectors like finance and other defensive industries, including FMCG, construction, and energy. The manager recommends investing in SOV, AAA-rated securities, and cash. This is a hybrid aggressive mutual fund designed for investors with a moderately high risk tolerance.

4. Franklin India Small Companies

Franklin Templeton Asset Management Company (AMC) stands out as one of the most robust research-driven fund houses in India. Among its flagship offerings is the Franklin India Smaller Company fund.

Return	1 Year %	3 Year %	5 Year %
Fund	0.33	2.70	7.40
Bench Mark	0.79	0.84	3.55

If you invest Rs 1,00,000 in this fund for 5 years, the accumulated amount would be Rs

1,42,897, assuming a 7.40% CAGR as of February 4, 2024.

This investment vehicle was initiated in January 2006, delivering an annual return of 17.83% since its inception. Over the past five years, it has exhibited a superior performance, yielding returns 7.40% higher than previous periods. Additionally, it has consistently surpassed its benchmark by 2.70% over a three-year span.

The fund is overseen by Janakiraman, a seasoned professional with more than ten years of experience. In May 2016, Hari Shyamsundar joined as co-manager, enhancing its management capabilities.

With a diversified portfolio comprising 71 stocks, the fund navigates market volatility adeptly. Core holdings include prominent names like HDFC Bank, Deepak Nitrite, Brigade Enterprises, Nesco, and JB Chemicals & Pharma Fund, with investments focused on finance, construction, chemicals, and services sectors.

5.DSP Small Cap Fund

Return	1 Year %	3 Year %	5 Year %
Fund	9.96	1.47	8.82
Bench Mark	0.79	0.84	3.55

If you invest Rs 2,00,000 in this fund for 5 years, the accumulated amount would be Rs

3,5,192, assuming a 8.82% CAGR as of February 4, 2024.

Over the past 5 years, this fund has achieved an annualized return of 8.82%, surpassing its benchmark by approximately 5%. Its strategic investments are concentrated in key sectors including chemicals, textiles, automobile, construction, and healthcare. Given its proven track record and strong historical performance, this fund is poised to continue delivering substantial returns in the future.

Taxation on long-term mutual fund investments

In India, profits earned from equity mutual funds held for more than a year are subject to a 10% Long Term Capital Gains Tax (LTCG) on amounts exceeding Rs 1 lakh. Gains up to Rs 1 lakh are exempt from this tax.


Discover the advantages of investing in mutual funds for the long term.

The outlook on profits varies between short-term and long-term investments. While short-term investments can experience fluctuating and volatile returns, long-term investments tend to be more stable and can potentially offer higher returns. This stability makes long-term investments an ideal choice for those with long-term financial goals.

If the investment in the fund exceeds one year, profits up to Rs 1 lakh are eligible for tax relief. Additionally, equity mutual funds are also eligible for tax exemptions under Section 80C of the Income Tax Act, as provided by the Government of India.