There are different reasons why people invest- it can be for ensuring the safety of their savings, for generating wealth or for a particular life goal. If capital preservation is your agenda, you can invest in short term investments that provide security and carry minimal risks. However, if you are looking for wealth generation, experts recommend going for long term investments.
Putting your money in a long term investment can help generate resources for the latter period of your life. The capital appreciation that they provide is essential for preparing yourself for retirement and other major life goals. But, do long term investments have the capacity to generate better returns? Read on to know.
What are long term investments?
Long term investment is investing in an asset or a financial instrument with a view of earning substantial returns over not less than five years.
Long term investments involve a certain amount of risk but have the potential of giving you significantly higher returns over a relatively longer duration as compared to other investments. These are suitable for those who have enough capital available to set a specific sum aside for an extended period..
What are the benefits of long term investments?
Long term investments have several benefits, the most significant of which are listed below.
1. You do not need to worry about the market volatility as the temporary losses are accounted for in the long run.
2. They are cost-effective as the longer term reduces the commission and other management charges.
3. Long term investments can help grow your wealth exponentially thanks to the power of compounding.
4. The Rupee cost averaging feature can helpyou earn better returns on your investment.
In addition to providing capital appreciation and helping you prepare for your life goals, long term investments balance out the risks with returns. They can also help inculcate the habit of saving in you.
What are the benefits of long term investments?
There are a variety of long term investment plans available to you. However, you need to analyse your needs and check which investment option is the best fit to fulfil your goals. We list some of the best long term investment plans and avenues available for you in India in 2020-
ULIPs (Unit Linked Insurance Plan) -
With the dual benefit of insurance and investment, ULIPs are one of the best long term investment plans. They can help meet a variety of life goals like retirement planning, your children’s marriage, and purchasing a house, among others. You can also avail a tax deduction of up to 1.5 Lakhs in a year
Equity funds -
Equity funds are mutual funds that invest in stock markets. They give you a chance to earn significant returns, albeit with more risks. You can also avail tax deductions if you opt for an ELSS (Equity Linked Savings Scheme). Equity funds are a perfect tool for planning long term goals like your retirement, buying a house or tending to your child’s higher education expenses.
PPF (Public Provident Fund) -
PPF is one of the best investment options for the long term. This is a relatively safe investment avenue for those planning for their retirement. They also come along with tax benefits.
Real estate -
Real estate is a booming industry. It has excellent prospects and investments in real estate tend to appreciate over time. However, the initial investment is quite significant too.
Gold -
A much-preferred investment product of the Indians, gold is an attractive long term investment option. You can invest in Gold bars, ETF, deposit scheme or a gold mutual fund, among others. However, the investment comes with 3-7 years of a lock-in period.
Bottom line -
Long term investments indeed guarantee better returns. You need to start investing early and be patient for a chance to earn maximum profits. Also, you must invest thoughtfully and check the past performance of the investment before putting your money in it. This ensures the safety of your money and increases the chances of better returns. You can also consult a financial advisor to check if the investment is healthy and can help achieve your life goals.