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5 Long-Term Investment Ideas for Tax Benefits

 
 

The importance of long-term investments cannot be over emphasised. They are the gateway to the power of compounding. Hailed as the 8th wonder of the world, compounding not only gives a return on your principal, but also gives continual returns on the returns - making your money work harder for you!

The key advantage of long-term investing is that it inculcates a habit of regular savings and makes you a disciplined investor. Staying invested for the long-term helps you understand the market cycles, which you can then utilize to your advantage by booking profits or adopting an appropriate investment strategy to lower risks as per your life stage, financial goals and risk appetite.

Let us read about a few popular long-term financial instruments that can help you get tax benefits while generating great returns:

Financial InstrumentDescriptionBenefits
Public Provident Fund (PPF)PPF is a tax-free long-term saving instrument that encourages small yet regular savings.

It is also backed by the government, making it a safe option.
It falls under the Exempt (Investment) - Exempt (Partial Withdrawals) - Exempt (Pay-outs) category - which means that you do not pay any tax at any stage of the investment.

While PPF rate or return varies based on government policies, it currently offers 8.1% (compounded annually) effective from 1st April 2016.
Sukanya Samriddhi Yojana (SSY)SSY is a scheme launched by Prime Minister Narendra Modi to encourage families to save for a girl child. It intends to help parents meet the cost of higher education, wedding, etc.You can enjoy tax benefits for the amount paid in this plan under Section 80C.

The interest earned, as well as the amount received on maturity are tax-free.
National Pension Scheme (NPS)NPS is a voluntary, defined contribution pension scheme, which is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

It aims to provide adequate financial security to individuals during retirement.
In case of employees, up to 10% of the salary is allowed as deduction under Section 80CCD.

In case of non-employees, up to 10% of their gross total income is allowed as deduction under Section 80CCD.

It also qualifies for an additional deduction of Rs. 50,000 under Section 80CCD(1B), which is over and above the limit of Rs. 1,50,000 prescribed under Section 80CCE.
Equity Mutual Funds (Diversified, Balanced, etc.)An equity mutual fund is a vehicle that invests in secondary markets such as stocks, bonds, etc., on your behalf.Equity funds have the potential to earn extraordinary returns over the long-term. This is an ideal mode of investment to beat inflation.

Long-term capital gains on equity funds are tax-free under Section 10(38).

Moreover, dividends received from an equity fund are tax exempt under Section 10(34).
Life Insurance PoliciesLife insurance is a financial tool where you enter into a contract with an insurance company. You pay premium for a fixed no. of years and should an unfortunate event such as death or disability occur, your family's financial needs are taken care of by the insurance company who pays the agreed life cover amount.Life insurance policies are long-term plans that offer multiple benefits like regular savings, wealth creation, tax-savings under Section 80C, along with the core feature of life coverage, ensuring financial protection for your loved ones in your absence.

 

The best part about life insurance is the wide range of products you can choose from. Based on your life stage and specific financial goals, you can pick the most suitable life insurance policy. Click here to understand about the various types of plans and how you should go about finding the best fit for yourself and your family.

 
 
 

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