Long-Term Mutual Fund Investment: Useful Strategies To Know

Updated on: 4 Dec 2024

When you have a corpus of funds that do not need to be allocated towards upcoming expenses, investing them can be a smart option. However, you must have a good strategy that you can follow up with in the future. Putting a good long-term mutual funds strategy in place needs patience, homework and a disciplined mindset.

Here are some tips that can help you to grow your wealth effectively through a good long-term mutual funds investment.

What is a Long-Term Mutual Fund?

These investments can generate a high revenue but also carry risks based on your choice of schemes. A good long-term mutual funds investment involves planning beyond 5 years and up to 30 years. You need to check how your investment is doing regularly because the value can change over time.

These funds can offer good rewards or money back over a long duration, but only if you can take on a bigger risk. Remember, they don’t promise a fixed amount of money over time. The value increases or decreases depending on market performance.

Why is Long-Term Mutual Fund Good?

There are many reasons to invest in it, as follows:

Benefits	Details
Enhanced Compounding	The principle of compounding works best with long-term mutual funds as returns over time are reinvested to generate a potentially higher revenue
Keeps Costs Down	It has lower turnover ratios, as the fund manager chooses securities for the long haul; with minimised buying and selling activities, the overall costs are reduced
Reduces Taxes	Longer investments allow you to pay less tax as per the Indian IT Act
Endures Market Fluctuations Better	Long-term investing allows you to take advantage of overall market growth while weathering short-term ups and downs

Tips for a Long-Term Mutual Fund Investment

Here are some ways you can choose if this is the right option for you and decide on the right strategy.

Determine Your Term

To create a long-term investment strategy, analyse your goal and decide why you want to invest. The reasons may be your retirement plan or paying for your kid’s college fees. Ideally, you should create a different portfolio for each.

For example, your retirement portfolio should be for the number of years until you reach the age of retirement. You can create a portfolio for your child’s higher education based on how old your

kids are and how much money you need. The best strategy is defining your five to ten-year goals before investing.

Understand Your Risk Levels

When you start investing in these funds, assume that you will be locked in for years. So, you should be ready for any kind of risk. Of course, you cannot predict everything. However, you can plan your investments based on your age and capability to handle market fluctuations and the potential risk of job loss/medical needs.

Explore Investment Options

One of the advantages of mutual fund investment is that you can choose from different asset classes to align with your goals. Based on this, you can diversify so that loss from one option will be offset by returns from another option.

For example, you face higher volatility when you choose equity mutual funds to invest for long-term horizons. On the other hand, debt funds are not as risky, but their returns are lower. The best way to proceed would be to explore all options when choosing mutual funds to invest for long terms.

Maintain a Disciplined Mindset

With long-term mutual funds, you don’t get access to returns quickly. You have to learn to stay patient. Do not panic during a downturn and you will be ready for long-term financial success.

Monitor Growth Regularly

To ensure your strategy is working, regularly track your mutual funds. Even if there is a minor setback, don’t make haste and withdraw your funds. This is because the returns in the long term can improve. However, if the NAV is below your expectations, you can make adjustments.

Consider the Fees

While looking for good long-term mutual funds, calculate the fees, too. Mutual funds have different kinds of fees, such as transaction charges, expense ratios and entry/exit loads. These can affect your returns and, therefore, should not be too high.

Whether you are doing it yourself or taking the help of a financial advisor, planning a long-term investment may take some homework. Once you’ve done it, however, you can position yourself for growth.

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