Sahil Rawal is a digital & brand management specialist with over 10 years of experience in Financial Services Industry. Life insurance professional with expertise in digital marketing strategy, website content marketing and brand communication designed to increase brand awareness, drive engagement & sales.
The proverb ‘Patience is a Virtue’ holds special meaning for those making long-term investments. Long-term investments plans are made for investment tenures of 5 years or longer and are designed to help investors beat inflation and achieve various long-term goals. This is quite different from making short-term investments where in the focus is primarily on preserving capital by choosing low-volatility investments.
So, if you are an aspiring investor, you must know about the workings, types, and strategies for making appropriate long-term investments that are in line with your goals. Let’s begin by learning about what long-term investments are and their key benefits.
What is a Long-Term Investment?
Long term investments mean holding an asset for a longer period, mostly five years or more, to enjoy bigger capital gains in the future. Some of the best investment options for the long-term include direct equity, real estate, saving schemes like Public Provident Fund (PPF), gold, equity mutual funds, and others.
Benefits of Investing in Long-Term Investment Plans
If you are considering investment options for the long-term, let’s consider some of the key benefits that you can look forward to.
Compounding Helps Grow Wealth Exponentially
When you hold an investment for a longer time, you have the power of compounding working in your favour. This means that the profit or interest you earn annually is added to the principal amount to give you bigger gains the following year.
Let’s understand this with an example.
Suppose you invest Rs. 1,000 in an asset and get 5% p.a. interest compounded annually. So, for the 1st year, your interest earning will be Rs. 50. But due to compounding the next year’s principal amount will be Rs. 1050, and the interest earned will increase to Rs. 52.5. This increase in returns will continue as long as you stay invested and let compounding of your investment continue. You can easily use a compound interest calculator to estimate the growth of your investment over time.
Minimizes Short Term Volatility Risk
Making long-term investments would help protect your capital against short-term market volatility. So, by staying invested for a longer tenure, the investment risks involved with short-term ups and downs in the market will be minimized.
This is primarily because, you get more time to choose long-term investment options that can help you diversify your investments and get an appropriate balance between returns and potential risks from these investments.
Potential for Tax Benefits
Many long-term investment plans can give you the benefit of tax deductions under various sections of the Income Tax Act like Section 80C. Such long-term tax-saving investment options like PPF, ULIPs, tax saver FD, ELSS mutual funds provide a dual benefit. You end up paying less tax by making the investments and also get the opportunity to grow your wealth through the benefit of compounding by staying invested for the long-term.
- Benefits of ULIP Investment Plan
- Types of ULIPs
- How to Save Tax with ULIPs
- Maximize Returns With ULIPs
- Best Short Term Investments for Tax Saving
- What is Power of Compounding
- What is Investment
- Types of Investment in India
- 80C Investment Options
- Fixed Deposit Interest Rates
- Voluntary Provident Fund
- Difference Between Saving And Investing
- What is Fixed Deposit
- What is Term Deposit
- What is Recurring Deposit
- Fixed Deposit vs Recurring Deposit
- What is KYC
- Max Life Guranteed Income Plan
- What is ULIP
Helps Achieve Long-term Goals
One of the key reasons why people invest for the long term is to try and achieve long-term financial goals. Such goals can be as widely varied as buying a house, saving for children’s higher education, ensuring adequate retirement planning, etc. Achieving these goals typically requires a large corpus and can be made possible only by making long-term investments that provide compounding benefits.
Knowing these multiple benefits must have certainly tempted you to go ahead with the best long-term investment plan. But how to pick a long-term investment plan that is suited for your needs? Read on to find out.
Tips for Choosing Long Term Investment Options
The following tips will give you an idea of which factors you need to consider when choosing long-term investment options to achieve your long-term financial goals:
Estimate the Corpus Needed
Your investment can be made to fund your retirement plan or beat inflation; you can achieve it by making a thoughtful decision. But first, decide on the approximate capital you will need by the end of it to succeed in your goal. Factor in your income, and then determine the amount you can spare for your investment.
By staying invested for the long term, your investments will have greater opportunity to grow through compounding. So, the earlier you start, the longer you can stay invested and the greater your chances of profiting from your investments. So, being an early bird when it comes to making investments is beneficial.
Invest in Equities
Equities whether they are equity mutual funds or stocks are considered ideal for long-term investments. These are especially known for giving inflation-beating gains. All you need to do is assess the market carefully before investing. Remaining committed to your investment is crucial for higher profits. Short-term market dips are usually temporary and these typically do not impact returns from long-term investments.
Don’t Give in to Market Noise
The market is always full of ‘expert’ opinions, suggesting where to invest and where not. One should not keep changing long-term investments based on such noise. Shutting out this noise and staying the course is the ideal way to ensure you benefit from long-term growth and high returns from your investments.
Diversify Investment Portfolio
You should never invest in only one long-term investment plan. For ideal returns, one needs to build a portfolio of diverse long-term instruments to minimize potential investment risks. Such diversification includes investing in asset classes like gold investments, equities, debt, real estate, etc. that can help with better risk management and generate higher long-term returns.
Popular Long-Term Investment Plans To Consider
We know why we should consider investment plans for the long term and how to pick the best long-term savings plan, but what should our investment instruments be? Let’s find out now!
It’s very convenient to invest in a mutual fund as you can start your investment with a sum that is as low as ₹500. The best long-term investment plan in the category is an equity mutual fund, which gives the best return. But note that the risk involved in this category is higher too.
Unit Linked Insurance Plans or ULIPs are a type of long term investment option that provides investors with 3 benefits through a single investment. So, an investor gets wealth creation, life insurance cover and tax savings under Section 80C through a single investment. One needs to stay invested for a minimum of 5 years in ULIPs which makes it a suitable option for a long term investment plan.
National Pension System (NPS) is a retirement and pension scheme that is open to all individuals be they salaried or self-employed. NPS allows investors to diversify their retirement savings across 4 key asset classes – Equity, Corporate Bonds, Government Bonds and Alternative Investment Funds (AIFs). What’s more, NPS investments undergoes superannuation only after the investor turns 60 years of age, so, investors can stay invested for the long term to get maximum benefits of compounding.
Public Provident Fund has been the go to long-term investment option in India for. You will need to lock in your money for 15 years under this scheme, but you get assured returns on your investment and tax benefits on amount invested along with tax free PPF interest earning and maturity amount.
Long-term investments in fixed deposits are usually favoured by risk-averse investors seeking assured returns from their investment. There are multiple options to choose from too such as fixed deposit at banks, FD at post office and even corporate FD. What’s more, you also have to option of getting tax savings under Section 80C if you opt for a 5-year tax saver FD offered by banks and the post office.
The above list is not exhaustive and you can opt for many other long-term investment options like Voluntary Provident Fund, National Savings Certificate, Kisan Vikas Patra and more.
Frequently Asked Questions (FAQs)
Q. What are some low-risk investment options for the long haul?
A. Low risk investment instruments that are popular among risk averse investors include fixed deposit, recurring deposit, Public Provident Fund, Voluntary Provident Fund, National Savings Certificate, Kisan Vikas Patra and more.
Q. Can I withdraw my money mid-way if I invested in a long-term investment?
A. Yes premature withdrawal is allowed however different long-term investment plans feature different restrictions in this regard. For example, premature withdrawal of FD leads to lower returns, while PPF and NPS withdrawals are restricted to key events like marriage, purchase of residential property, covering medical costs due to critical illness, etc.
Q. What are the documents needed for buying an investment plan?
A. You will need your age proof, income proof, ID proof, and address proof for purchasing an investment plan. In this regard, salary slips, Aadhar cards, passports, income tax returns, and PAN cards may be used.
Q. What are some examples of long-term investment plans with assured returns?
A. A few long-term investment options in India provide investors with assured returns i.e. a fixed rate of interest on the investment. Some examples of such instruments are PPF, VPF, fixed deposits, recurring deposits, National Savings Certificate and Kisan Vikas Patra.
Q. What should I start my long-term investment with if I am a beginner?
A. The choice of long-term investment will primarily depend on two factors – your investment goal and your current investments. Based on these considerations you can opt for specific asset classes to invest in like equities, debt, gold, real-estate, etc. to ensure that you create a diversified investment portfolio.
The investment risk in Investment portfolio is borne by the policyholder.
ARN No: Nov22/Bg/16