- Date : 27/01/2022
- Read: 4 mins
You need to be a committed and disciplined investor if you wish to meet your financial goals.
An investment has to be for at least three years to be deemed a long-term investment, and if planning for retirement, your long-term investment plan should span 20-30 years. Either way, you need commitment and discipline. Here’s a list of the best long-term investment options you can choose from based on your risk tolerance.
One of India’s best long term investment plans is the Public Provident Fund (PPF), which currently attracts an interest rate of 7.1%. You can invest in this scheme for tax saving purposes, as contributions to this (and also EPF - Employee Provident Fund) qualify for tax benefits up to an investment of Rs 1.5 lakh. Both are safe investments. The maturity period is 15 years, though early partial withdrawal is permitted with conditions.
Unit-linked insurance plans or ULIPs are also long-term investment options to consider. Part of the premium is invested in insurance coverage and the remaining in market-linked financial instruments such as shares and bonds. So, ULIPs offer both insurance and investment benefits, and some plan types also aid tax saving. Deemed wealth creators, ULIPs are ideal for those with low risk tolerance and/or planning for retirement, children’s education, and medical contingencies. Investors can avail of tax deduction up to Rs 1.5 lakh on the policy premium amounts paid.
3. Mutual Funds
You can also look at mutual funds, which collects investments from a group of people and invest in financial securities and money-market instruments for high returns over the long term. These (ELSS) also offer tax deduction of up to Rs 1.5 lakh on the invested amount. Mutual funds can be classified on the basis of where the collected funds are invested, as explained below:
- Equity funds: High-risk funds providing high returns, these invest in equity stocks/shares
- Debt/fixed-income funds: Considered ‘safe investments’ with fixed returns, these invest in debt instruments such as debentures, government bonds, etc.
- Money market funds: Deemed safe investments for surplus funds, with immediate but moderate returns, these invest in liquid instruments such as treasury bills and commercial papers
- Hybrid/balanced funds: These invest in a mix of asset classes with risks and returns balanced out
Some types of mutual funds are classified as per investment objectives, two examples being:
- Growth funds: Risky but ideal for those with a long-term investment horizon, these invest typically in equity stocks
- Tax-saving funds (ELSS): Highly risky but can offer high returns, these invest primarily in stock market and the investments enjoy tax benefits
4. National Pension Scheme (NPS)
Available to all Indian citizens, the National Pension Scheme (NPS) is a long-term investment scheme designed as a pension plan for retired life, and requires participants to invest in this scheme till the age of 60 years. Withdrawal of up to 25% of the invested amount is allowed after three years of investing for special cases, such as:
- Children’s wedding
- Children’s higher studies
- Buying/building a house
- Medical treatment of the subscriber or their family members
A maximum of three withdrawals are permitted at intervals of five years or more. On turning 60, subscribers can exit from NPS. From the proceeds received, they must invest at least 40% of the amount in purchase of an annuity.
NPS contributions come under the exempt-exempt-exempt (EEE) tax regime, where the contributed amount, the income generated and the maturity are all tax-free.