Long term investments offer several advantages. They compound interest like fixed deposits in a bank and are more tax efficient like certain mutual fund investments. Long term investments are held for 3 years or more, but these kind of investments need commitment even if you face financial crunches in between.
Long term investments give superior returns whenever it matures. These kind of investments are suited perfectly for your child, as you can plan financially for his/her future – education, marriage and lifestyle. There are several long term investment options available and you must choose one carefully depending on your financial goals and the risk factors attached to the investment plans in India.
It’s called ‘Long term’ for a reason, you invest and forget about the money till the time it matures. Keep a tab on your savings from time-to-time so that you’ve an idea of your investments. Here are some long term investment options for you –
- PPF and EPF
One of the most popular investment options in the country, the Public Provident Fund is with an interest rate of 8.7% and still remains the best bet. It has tax benefits under section 80C and also the interest income has income tax exemptions (is exempted from tax.).
PPF is particularly relevant for individuals with a low risk appetite looking to save money over the long term for retirement planning or any other long-term financial goal. Investors with higher risk appetites can also invest in it to balance their investment portfolio.
Contributions to PPF as also EPF (Employee Provident Fund) qualify for tax benefits. A maximum investment of Rs 1.5 lakhs is permitted for the purpose of claiming benefit under Section 80C. The individual can invest more than that, but can’t claim tax benefit
The interest rate on the PPF is market-linked and reset every year. The PPF matures in 15 years. You can withdraw after six years but it cannot exceed 50% of the balance at the end of the fourth year or the immediate preceding year, whichever is lower.
Investing in stocks is another option however though there is no guarantee that you will gain any returns. You can opt as a part of the portfolio and percentage of allocation should be based on the risk capacity.
- Mutual funds
These are for people who want to invest in bonds and equites in order to balance the risk and return. There are several types of funds in which one can invest depending on its risk capacity. Or you can also opt for Systematic Investment Plan (SIP) which reduces the market risk by building a portfolio in a longer duration with small investments at regular intervals.
- Real Estate
Real estate is a booming industry in our nation. It has great prospects in all the sectors like hospitality, commercial, retail, housing, manufacturing etc. People who have received huge cash benefits from prior investments can invest in real estate.
If you find investing in stocks risky then bonds provide a safer option. A 10 year government bond gives an interest rate of 7.70 percent, you can also opt for inflation indexed bonds, here the interest rates are based on the inflation.
An all-time favorite investment product, you can invest in gold in any format – Gold bar, Gold ETF, gold mutual fund, gold deposit scheme etc. The bond will have a tariff free interest rate of 4% with a lock in period of 3-7 years.
Unit linked insurance plans, also known as ULIPs invest in debt markets and equities. You can watch over the ups and downs by the net asset value (NAV) . Although ULIPs are not recommended by most due to various charges, they can give you a decent return of 8% on long term investments.
Unit-linked insurance plans or ULIPs invest in asset markets – equities and debt. For this reason their portfolio witnesses ups and downs which is captured by the net asset value(NAV), usually published at regular intervals. All purchases and redemptions in the ULIP are at the NAV plus a load, if any.
Given the fluctuations inherent in ULIPs from exposure to equities, they are ideally suited for investors who consider high risk investments.
ULIPs usually offer a wide range of options across equity and debt markets. The varied choice of options means you have a better choice of finding the most suitable plan/option for your risk profile and investment objective.
ULIPs offer tax benefits under Section 80C. The maximum deduction that can be claimed is Rs 1.5 lakhs. Redemption proceeds are tax-free under Section 10(D) and hence ULIPs also play the role of ideal tax free investment options in India.
ULIPs can prove useful in meeting a range of financial goals like retirement planning, child’s education / marriage, down payment for a house, among others; hence making them an ideal choice to opt for while choosing a long term investment option.
Mutual funds that invest in stockmarkets are a must-have for long-term investors. These long term investment plans diversify across stocks and sectors to ensure they make the most of emerging trends in stockmarkets.
Go for well-managed, well-diversified equity funds with long-term track records across market cycles. Enter the fund with a horizon of at least five years to give the investment an opportunity to record long-term gains.
If you are looking for tax benefits, opt for tax-saving mutual funds, also called ELSS or equity-linked saving scheme. These mutual funds work like regular equity funds except that they have a three-year lock-in. They offer tax benefits under a maximum investment of Rs 1.5 lakhs. Redemptions are tax-free under Section 10(D).