Through this blog you shall become familiar to What is a Long term Investment? What are the different best long term investment options for an individual investor who wishes to save and invest for his future requirements in a wise manner.
What is Long term Investment? Meaning
Long term Investment is one where you invest your money for a fairly long period of time. Here, the investment is spread over a longer tenure to meet your long term financial goals.
An investment done for a period of more than 3 years, in some cases 5 years is generally considered as a long term investment. For some long term period goes beyond 10 years as well.
Just remember, Insurance and investment are two essential components for building a long term investment plan. They should not be mixed and kept separate to achieve different financial goals. Insurance aims at providing financial security to you or your family. While investment is to grow your money.
Long Term Investment: Objectives
Long term Investments are usually done to meet your long term financial objectives and future expenses like:
- Education of children.
- Marriage of children.
- Purchasing a House.
- Setting a retirement corpus.
- Or any other long term financial goals that you want to achieve.
- Making yourself financially free.
- Building a good corpus for yourself.
- Benefit from the power of compounding.
- Money invested for longer period tends to generate good returns.
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Best Long Term Investment Options in India
Here’s a list of some of the popular choices when it comes to selecting the best long term investment option in India:
1. Public Provident Fund or PPF:
PPF is the most common and one of the traditional long term investment options in India. PPF is considered as one of the safest and most tax efficient tools. When you invest your money in PPF or Public Provident Fund, there is an assurance that you will get fixed returns at maturity and there is no risk involved.
Your money is lying safe and you shall be earning a fixed annual rate of return. You can open PPF account in bank or a Post office as per your convenience. PPF Interest rate for 1st quarter of F.Y. 2019-20 i.e. from Apr’19 to Jun’19 is 8% p.a. only.
Here is a table showing the changes in PPF interest rate since the past few quarters:
| Period | PPF Annual Rate of Interest |
| 1st Jan'20 to 31st March'20 | 7.9% |
| 1st Oct'19 to 31st Dec'19 | 7.9% |
| 1st Jul'19 to 30th Sept'19 | 7.9% |
| 1st Apr'19 to 30th Jun'19 | 8% |
| 1st Jan'19 to 31st March'19 | 8% |
| 1st Oct'18 to 31st Dec'18 | 8% |
| 1st July to 30th Sept'18 | 7.6% |
| 1st Apr'18 to 30th Jun'18 | 7.6% |
| 1st Jan'18 to 31st March'18 | 7.6% |
| 1st Oct'17 to 31st Dec'17 | 7.8% |
| 1st Jul'17 to 30th Sep'17 | 7.8% |
| 1st Apr'17 to 30th Jun'17 | 7.9% |
| 1st Jan'17 to 31st Mar'17 | 8% |
| 1st Oct'16 to 31st Dec'16 | 8% |
| 1st Jul'16 to 30th Sep'16 | 8.1% |
| 1st Apr'16 to 30th Jun'16 | 8.1% |
| 1st Apr'15 to 31st March'16 | 8.7% |
But, the lockin period for PPF is 15 years, with partial withdrawal in the 5th year subject to certain conditions. The interest as well as the maturity amounts are totally exempt from tax. You can claim a deduction U/s 80 C of Income Tax act, for contribution made towards PPF upto a maximum of Rs.1.5 lakhs.
So, PPF is normally considered as one of the Best Long term Investment Options due to its EEE nature i.e. Exempt, Exempt and Exempt.
To clarify further, EEE or Exempt at all 3 stages means:
- Contribution or Deposit amount is Tax free U/s 80 C of The Income Tax Act.
- Interest earned is Tax free.
- Maturity/Withdrawal amount is also Tax free.
For detailed analysis on PPF you can follow: PPF Account, Interest rates, Rules – The Ultimate Guide!
The reduced PPF Interest rates over the period lead the investors to look into other investment alternatives.
2. Gold Investments:
Investing in gold jewellery has been a traditional way of investment for people around the globe especially Indians. Other than gold jewellery, one can invest in gold in various other ways like Gold ETFs, Gold Mutual funds, Gold Deposit Scheme etc. Gold prices are rising high since past few years but still it hasn’t lost its lustre. People love investing their money in gold and it yields very good returns.
Also, gold has been a popular investment option since ages and it has often proved to be handy at various times.
No matter in what form, Gold is certainly a value addition to your Financial portfolio. It is just that you have to time the market and buy some gold when prices are low.
3. Mutual Funds:
Mutual funds are instruments that pool in savings of various investors to invest them in shares(stocks), debt securities or fixed income securities, money market securities etc. Mutual funds have grabbed the attention of potential investors and gained popularity over the past few years.
In simple terms, you will not directly invest in stocks or securities etc. but through mutual funds.
The companies that manage these funds are known as Asset Management Companies or AMCs and these are regulated by SEBI or Securities and Exchange Board of India.
Mutual Fund Types:
Following are 3 broad categories of Mutual funds further invest your money in either fixed income securities, equity or both:
- Debt Mutual Funds invest in Debt Instruments or Fixed Income Securities only.
- Equity Mutual Funds invest in Equity or as we say Stocks.
- Hybrid or Balanced Funds invest partly in stocks and partly in fixed income securities.
Equity mutual funds are linked to equity so carry more risk as compared to Debt funds. But, based on historic data, equity funds perform better and yield high returns if the amount is invested for a longer period.
However,if you still want to play safe, debt funds are a better option. You can checkout Debt funds vs Equity funds.
In order to enjoy good returns from mutual funds,you have to invest your money for a longer period.
You can invest lumpsum or small amounts (instalments) in mutual funds. Investing in mutual funds through small regular amounts is a better option since that will not overburden your pocket and SIP in mutual funds is a good way to do it.
4. Real Estate:
Tired of paying the monthly rent, most of us wish to buy our own house or a piece of land where we can build our dream home. If planned in a proper way, you can invest your savings in the real estate sector. But, you have to be very careful while choosing the right option since this involves huge investment.
Moreover, one has to be patient enough to face the impact of fluctuating prices in the real estate sector. Your property might appreciate immediately or it might take many years for appreciation.
So, investment in real estate involves huge sum of money, you need to plan things in a systematic manner in order to enjoy good returns.
Also, Investing in real estate is a big decision, you won’t earn returns immediately. You need to be cautious and be aware of the market trends and sit back and wait for the property to appreciate.
Firstly, make yourself equipped with Home buying tips and other real estate investment tips.And, then only move forward to invest such a big amount.
5. Long term bonds:
What is a Bond? In simple terms, A Bond is an instrument to borrow money.
Who needs to borrow money and Why? The Government and companies require money from time to time for various projects or their expansion.
So, you get your money invested and the borrower will pay you a fixed rate of interest based on the term of the bond.If you invest in bonds, you will be considered as a lender unlike equity where you have an equity stake in the company. Bonds are normally issued for a definite period, they shall be redeemed once the period is over.
Investing in long term bonds is also a good alternative for earning decent returns on your investments.
e.g. Infrastructure bonds and NABARD Rural bonds will give you good returns as well as Tax benefits Under Section 80C of The Income tax Act.
You can also select other government bonds or Inflation Indexed bonds that can give you fair returns over the long period. Hence, bonds with longer maturity will payback higher returns as compared to short term bonds.
6. National Pension Scheme (NPS):
NPS is a government approved pension scheme regulated by Pension Fund Regulatory And Development Authority (PRDA). The main aim of investing in NPS is building a retirement corpus for yourself. You can start contributing to NPS at an early age of 18 years maximum upto 65 years. It is mandatory for central and state government employees while others can voluntarily contribute to it.
Important Note: As per amendment dated 1.11.2017 the maximum age for joining NPS has been increased to 65 years (from the earlier age limit of 60 years).So,now an Indian citizen between the age of 60-65 years can also join National Pension Scheme or NPS.
Under NPS or National Pension Scheme 2 types of Pension Accounts are there:
(i) Tier I Account:
You contribute to NPS account with certain restrictions on withdrawal. So, this is basically can’t be withdrawn till retirement.The minimum annual contribution has been reduced to Rs.1000 (earlier this was Rs.6000).
(ii) Tier II Account:
You can withdraw from Pension account any time without any restriction. The minimum annual contribution of Rs.250 and maintaining a minimum balance of Rs.2000 at the end of the financial year has been waived.
In NPS your money is invested in different asset classes as per your choice in E-Equity, G-Government Securities/Government bonds or C-Credit risk bearing fixed income securities.
If you are a safe player, you can invest in C or G asset classes. If you can afford high risk, you can choose E Asset class. As far as equity is concerned, you can put upto a maximum of 50% in equity.
There are certain restrictions on withdrawal from NPS before retirement and the minimum 40% of the corpus has to be used to buy annuity. But, the main disadvantage of NPS is that the maturity amount is not tax free completely unlike PPF where maturity amount is fully exempt from tax.
7. Post Office Saving Schemes (POSS):
Investment in Post Office Saving Schemes is preferred by individuals who want to earn fixed returns with no risk. Since, it is a government scheme, no risk is attached to it. Post office schemes are in the form of:
- National Savings Certificate(NSC)
- Monthly Income Scheme
- Recurring deposit scheme
- Kisan Vikas Patra (KVP) etc.
Do have a look at the new interest rates on Post Office Schemes.
Post Office Schemes are best suited for risk averse investors, having long term goals and looking for guaranteed returns. Investing in Post Office Monthly Income Scheme (POMIS) and National Saving Certificates (NSC) is considered as good option amongst other Post Office Saving Schemes.
So, Post Office Schemes are basically for the conservative investors, who are hesitant to take nay sort of risk and are satisfied with normal and not so high returns.
For a detailed analysis of different Post office schemes you can go through: Post Office Small Saving Schemes in India!
Wait…the list is not yet over.
There is yet another long term investment option that attracts a huge number of investors.
Investment in Stocks or Shares:
Just remember, Investment in stocks/shares involves huge risk and a lot of patience if you really want to see your money grow. You might have heard people turning millionaires through investing their money in stocks. But, not all are so lucky.
There are different types of stocks available to invest. Be very careful while putting your hard earned money in the share market. You may gain a lot or you may loose it all. Be extra cautious and make yourself fully aware of the markets and the risks associated with it. Do proper research work and add to your knowledge before investing in any risky options.
Hence, a well planned investment strategy aligned towards achieving your long term financial goals can yield very good returns in the long run.
If you are interested in stocks, you may also like to go through 2 of our popular posts :
Best Demat and Trading Account in India! and Best Discount Brokers in India!
Long Term Investments: The Bottom Line
Investing through correct strategy will not only add to your financial assets but you can enjoy tax benefits as well and save some of your hard earned money.
So, diversify your portfolio by adding different options to it rather than sticking to age old methods like Fixed Deposits and gold jewellery. This way you tend to get maximum returns with lesser risk involved and are able to manage your personal finance in the best possible manner.
This was our list of some of the common and Best Long term investment options in India. Do you have any others investing alternatives to add to our list above? Feel free to give your suggestions and feedback in the comment section below! Don’t forget to share it with your family and friends.
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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.
Brilliant and simple. Many of us can’t decide how to plan our finances. Hoping more such information will come in future. I wanted to know how to get rid of huge loans in Personal or Housing loan. How to maximize the money growth to reduce the interest burden of loans. Please share your views on that also.
Thanks for sharing a piece of valuable information about the low-risk high return options and the best long term investment options in India.
Very well explained! Thanks for sharing details on different long term investments in India.
Why long term investment needs to be there? If short term investing is about capital preservation, at the same time long term investment is about wealth creation. Long-term investing plans means accepting a certain amount of risk in the pursuit of higher rewards.
According to me, good Long Term Investment options are:
1. Stocks
2. Long Term Bonds
3. Mutual Fund
4. Real estate
Really it’s a great piece of information. Thanks for sharing the valuable information about long term investing options in India. I feel real estate has lost its charm since past few years. I made few investments in real estate. But, market is low these days. But, I am hopeful it will rise soon.
Planning for long term goals is really important these days. Looking at high cost of living and inflation, it’s better to plan wisely for our retirement at a young age. So, one should surely have a long term investment strategy to reap benefits later on. Thanks for sharing these ideas and tips.
Very nice article,loved to read this. Like the way you explained your thoughts.Thanks for sharing.
Looking at the reducing PPF interest rates, I think one should try other investment options that can give high returns.The rising inflation affects a common man’s pocket deeply.So,one should start financial planning at an early stage.
I personally liked the way you curated each and every word in this blog.I can feel the important information you are trying to give.Before reading this blog I was zero now I am feeling like I am at one.Thanks for your wonderful words.
Brilliant blog. Well written and excellent information provided
Thanks for your appreciation 🙂
Very informative and useful article for raw person in finance planning.
Thanks Pravin, this is what our motive is to simplify things for the common man.Happy to help 🙂 Keep visiting to checkout our latest posts.
Article is very helpful.