The best mutual fund for long term is one that is likely to last and provide above average returns consistently.
The top 5 things you are looking for are:
- Consistency: Why not the top performer? That is because this years top performer is unlikely to be next years top one. Like in cricket, batting averages really matter.
- Good sequence of returns: Because a bad couple of years can hit you really bad. If a fund goes down by 50% in one year, it needs to rise by 100% just to recover fully. That is tough and nearly impossible. This is related to #1 above but is worth imbibing again.
- Low expense ratio: A lean fund is the best. A mean fund is not! Often high expense ratios hide other unsavoury aspects and it is better to avoid such funds.
- Direct Plans only: Avoiding broker commissions of 1% to 1.5% each year means you gain by upto 40% or more! So avoid any fund that does not have the word “Direct Plan” in it. [Disclosure: I am with jama.co.in which offers only direct plan mutual funds with advisory support]
- Fund House Reputation: The best fund houses have the better fund managers and also have better processes which in turn ensure consistency.
Some of the funds from a 20 year perspective would be (in our view) as of now:
- Quantum Long Term Equity Fund
- Aditya Birla Sun life Frontline Equity Fund
