4 Best Mutual Funds for Long-Term Investing

Think of long-term investing like planting a tree; the earlier you start and the more patiently you nurture it, the stronger it grows over time.

For those who wish to create wealth steadily over the next 5 to 10 years, long-term mutual fund investing remains one of the most effective routes. It not only helps compound returns but also cushions short-term market fluctuations.

With 2025 facing headwinds but also bringing renewed optimism to the Indian economy, this is a good time to review the top-performing mutual funds in India that have shown consistent results and sound portfolio management.

In this editorial, we'll explore the 4 best mutual funds to invest in 2025 for the long term, understand their investment approach, and see what makes them stand out in the current market landscape.

#1 Parag Parikh Flexi Cap Fund

The Parag Parikh Flexi Cap Fund, launched on 24 May 2013, is an open-ended dynamic equity scheme that invests across large, mid, and small-cap stocks.

Earlier known as the Parag Parikh Long Term Value Fund, it follows a value-oriented, research-driven approach focused on long-term capital growth.

The fund's philosophy revolves around buying fundamentally strong companies at reasonable valuations and holding them patiently over time. It follows a bottom-up stock selection strategy, emphasising intrinsic value over short-term market movements.

Its investment objective is to deliver long-term capital appreciation through a diversified portfolio comprising Indian equities, foreign equities, and debt instruments.

The flexibility to invest in debt and foreign equities provides an additional layer of diversification and stability during volatile market conditions.

The fund can invest up to 35% in overseas equities, offering exposure to global growth stocks.

Asset Allocation (%)

Source: Fund Factsheet and Scheme Information Document, September 2025.

As a Flexi Cap Fund, it invests freely across market capitalisations, ensuring diversification across sectors such as financial services, technology, and consumer goods. If we see the risk & return profile, the scheme carries a moderate to high-risk rating as per the latest risk-o-meter.

This reflects the inherent volatility of equity markets but is balanced by the fund's disciplined value-investing strategy and prudent diversification.

5 Year Performance Snapshot

Source: Fund Factsheet and Scheme Information Document, September 2025

#2 HDFC Large Cap Fund

Launched on 11 October 1996, the HDFC Large Cap Fund is an open-ended equity scheme that focuses primarily on investing in large-cap companies those ranked among the top 100 in market capitalisation as per SEBI's definition.

The fund's objective is to achieve long-term capital appreciation and steady income by owning well-established, fundamentally strong businesses.

The investment strategy blends growth at a reasonable price with elements of value investing. It follows a bottom-up stock selection approach, identifying competitive and sustainable companies while maintaining awareness of sector-level dynamics.

Asset Allocation (%)

Source: Fund Factsheet and Performance Data, September 2025

As of August 2025, the fund maintained about 97.1% in equities and 2.8% in cash and equivalents. The high equity allocation underscores a growth focus while retaining a small cash buffer for liquidity.

By design, the portfolio remains tilted toward large-cap stocks around 93% large-cap, 5% mid-cap, and negligible small-cap exposure. Large-cap companies provide resilience across market cycles, balancing risk and performance effectively.

The fund is well diversified.

Top Sectors (September 2025)

Source: Fund Factsheet and Performance Data, September 2025

This sector allocation reflects the fund's focus on stability while capturing opportunities across India's major industries.

As of September 2025, the fund's AUM stood at Rs 382.51 bn, with the following key holdings: HDFC Bank (9.51%), ICICI Bank (9.17%), Bharti Airtel (5.85%), Reliance Industries (4.80%) and Kotak Mahindra Bank (3.82%).

Over 3 years (ending September 2025), the fund recorded a Standard Deviation of 11.84%, a Sharpe Ratio of 0.91, and a Beta of 0.92, indicating slightly lower volatility than the overall market.

5 Year Performance Snapshot

Source: Fund Factsheet and Performance Data, September 2025

#3 Motilal Oswal Midcap Fund

Launched on 24 February 2014, the Motilal Oswal Midcap Fund is an open-ended equity scheme focused primarily on mid-cap companies with the potential to transition into largecaps over time.

The fund's core objective is long-term capital appreciation by investing in quality mid-cap businesses with sustainable competitive advantages and consistent earnings growth.

The scheme follows a bottom-up investment approach, emphasising business quality, management capability, and long-term scalability.

Asset Allocation (%)

Source: Motilal Oswal Midcap Fund Scheme Information Document (SID, May 30, 2025)

As of September 2025, the portfolio mix was: Mid Cap: 73.2%, Large Cap: 17.8% and Cash: 9%.

This allocation highlights the fund's growth orientation while maintaining a small, large-cap and cash exposure for liquidity and stability.

The fund is diversified across sectors with a strong presence in technology, consumer, and industrials.

Top Sectors (September 2025)

Source: Fund Factsheet and Product Note, Data as of September 30, 2025

The top 3 sectors collectively account for more than half of the portfolio, reflecting a strategic focus on India's consumption and digital transformation themes.

If we look at the top holdings of the funds, Dixon Technologies (9.6%), Eternal (9.4%), Coforge (9%), Persistent Systems (8.3%), and One 97 Communications (8.1%).

As of 30 September 2025, the fund recorded a standard deviation of 17.2%, reflecting moderate volatility consistent with its mid-cap focus.

The Sharpe ratio stood at 1.3, indicating that the fund has delivered strong returns relative to the level of risk taken. With a beta of 0.9, the fund's volatility is lower than that of the broader market.

The portfolio turnover ratio of 1.3 highlights a moderately active investment approach, balancing conviction-based stock holding with timely portfolio adjustments.

5 Year Performance Snapshot

Source: Fund Factsheet and Product Note, Data as of September 30, 2025

#4 Bandhan Small Cap Fund

Launched on 25 February 2020, Bandhan Small Cap Fund (formerly known as the Bandhan Emerging Businesses Fund) is an open-ended equity scheme that primarily invests in small-cap companies.

The fund's investment objective is to achieve long-term capital appreciation by building a diversified portfolio of quality small-cap stocks with scalable business models.

It follows a Quality-Growth-Valuation (QGV) framework and adopts an absolute return-oriented approach rather than relying strictly on benchmark alignment.

Portfolio Classification by Asset Class (%)

Source: Fund Factsheet and Quarterly Update, Data as of September 30, 2025

This structure allows the fund to capture the high-growth potential of small-cap stocks while maintaining liquidity and stability through moderate exposure to larger market segments and cash.

Top Sectors (September 2025)

Source: Fund Factsheet and Quarterly Update, Data as of September 30, 2025

The fund maintains broad diversification, holding 222 stocks, with the top 10 holdings accounting for less than 30% of the total portfolio, reflecting effective risk dispersion across sectors and companies.

Bandhan Small Cap Fund's holdings include Sobha (3.39%), REC (2.36%), LT Foods (16%), South Indian Bank (1.98%), and Cholamandalam Financial Holdings (1.66%).

While the fund maintains a high equity allocation, it also holds 10.2% in cash, offering some liquidity buffer. However, the fund's factsheet does not specify any holdings in debt instruments such as G-Secs or AAA-rated bonds.

In terms of risk and return metrics, the fund recorded a Standard Deviation of 17.9%, a Sharpe ratio of 1.3, and a beta of 0.9.

The beta value indicates that the fund's volatility is lower than its benchmark. The Sharpe ratio highlights the fund's strong risk-adjusted returns, reflecting its ability to generate efficient returns relative to the level of risk taken.

5 Year Performance Snapshot

Source: Fund Factsheet and Quarterly Update, Data as of September 30, 2025

Which Mutual Fund is Best for Long Term?

When comparing the four funds, Parag Parikh Flexi Cap Fund, HDFC Large Cap Fund, Motilal Oswal Midcap Fund, and Bandhan Small Cap Fund each caters to a different risk appetite and market segment, ranging from stable large caps to high-growth small caps.

Investors should consider their risk tolerance, investment goals, and time horizon, while keeping in mind that equity funds are influenced by market movements and may experience short-term volatility despite their long-term growth potential.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...