A long-term investment is one in which you invest money for a long period. While understanding the long term investment in India, we see that it extends over a longer period to meet the necessary plans. An investment made for more than 3 years to 5 years is generally considered as a long-term investment. For some long-term investments, the period can also exceed 10 years. So know this before investing! The benefits of understanding everything about long term Investment Plans in India are very important for the secondary sector of the country.
Always remember, Insurance and Investment are two key components for building a long-term investment plan. The insurance aims to provide financial security for you or your family. So these should never be mixed together if achieving profit is the goal.
Long-term investment in India
Public Provision Fund Or PPF
It is among the most common type of old long-term investments in India. PPF is considered as one of the safest and most effective tax instruments. When you invest money in PPF or the Public Provident Fund you get confidence that you will get fixed returns at the end and there are very minimal risks.
Understanding and investing in PPF as Long Term Investment Plan is a nice choice for a good return in the future. Your money is safe and you will earn a fixed annual rate of return. You can open your PPF account at your bank or post office, depending on your convenience. PPF Interest rate for the first quarter is 7.1% p.a. now.
Investing in gold jewelry has been a traditional way of investing for people around the world, especially in India. In addition to gold jewelry, one can invest in gold in various other ways, such as gold ETFs, gold mutual funds, gold deposit systems, etc. People love to invest their money in gold and get a very good return.
Gold has been a popular investment option from an early age. No matter what the form is, Gold is an added value to your financial portfolio. You just have to make a plan and look for the time when the prices are low, to buy some gold, and invest your money in it.
Mutual funds are instruments that bring together the savings of various investors to invest them in stocks (shares), debt or fixed income securities, money market securities, etc. They have attracted the attention of potential investors and have gained popularity in recent years.
In simple terms, you will not invest directly in stocks or securities, etc., but will invest with mutual funds. The companies or organizations that manage these funds are known as Asset Management Companies or AMCs, and they are regulated by SEBI or the Securities and Exchange Board of India.
Tired of paying monthly rent, most of us want to buy our own house or a piece of land where we can build our dream house. If planned properly, you can invest your savings in real estate. But, you have to be very careful when it comes to choosing off the right option because it involves huge investments.
Moreover, we must have enough patience to deal with the impact of price fluctuations in the real estate sector. Your property may appreciate immediately or take many years to appreciate.
So, investment in real estate involves a huge amount of money in the long term. You need to have an understanding of plans and things in a systematic way to enjoy good returns in India. To know about more types of real estate investment click here.
How to do long term investment
The long-run is forever when it comes to investing. The idea of big investors is that they will buy only those shares that they think will be good at the point of purchase even if they are kept forever. These are such stocks that you will never want to sell. Here are some principles that ordinary people can follow to make long-term investments:
Diversified portfolio for Long Term Investments
Never fill your portfolio with a single asset type. It is advisable to have a mix of securities/assets in your portfolio. You can diversify by holding a number of items such as stock, ETFs, equity funds, valuables, gold, cash, etc.
Pension Fund, National Pension System and Employees’ Provident Fund
A common mistake which many people do is, they complicate investing theory while thinking of many things. If you are also confused while investing money, go for retirement-related investments. An employee can maximize his / her EPF (Employees’ Provident Fund) or Pension contribution. If you are self-employed, consider increasing your contributions to the NPS(National Pension System).
Manage your risks with Long Term Investments
If you are an investor you will always invest money. But while doing this, you need to know how to manage your risks.
How to do it? A simple rule is, if you don’t know about stocks, avoid it. If you still want to explore your capital, do it through mutual funds.
How to buy units of mutual funds? Always buy it via SIP(Systematic Investment Plan). Continuing SIP contributions for at least 5-7 years can provide you the best returns.
Idea for long term investment
We invest money to build and improve our financial health. Many benefits of long term investments are enjoyed in India. An alternative investment strategy could be to make short-term investments (such as day transactions). Here the investor makes profit reservations more often. Unlike daily trading, long-term investors make profits once in 7-10 years.
Which assets to buy for Long Term Investments
How to choose long-term investment assets? Suppose you bought a fixed deposit from a bank that gives 5% p.a. return. If you hold FD for a year, it will give 5%, and if you keep it longer (say 5 years), it will give only 5% again. But if you invest in a mutual fund, the conditions will be different. Here, the chances of earning profits of more than10% p.a. it becomes large when maintained for the longer term.
How long one should hold the Long Term Investments
There are no fixed rules. While dealing with equity, long-term participation is mandatory. On average, the equity should be kept for 5-7 years (minimum) to avoid the risk of loss and to achieve high returns. The high return in turn will make the final receiving amount larger in the long run.
Benefits of long term investment
Take the emotions out of the equation
One of the biggest aspects of long-term investment is that it almost completely removes your emotions from the equation. A market that jumps 10% in a few days will not allow you to sit on the edge of the chair to sell, and a hiccup in overseas markets that sends US stocks of 3% is not responsible for sending you running up the hills. Your long-term stocks allow you to focus on your investment, which is the long-term growth prospect of a business or the viability of a new business model.
The data shows that you will be right
Historically, if you align your portfolio in the long run, you are more likely to make money. Although stocks have about a 50-50 chance of rising or falling, stocks can only fall to RS 0 but can rise indefinitely. If you let your winning trades play, there is a good chance that in the long run, you will see your portfolio grow in value, especially if you focus on high-quality business.
Composition works to your advantage
Buying long-term investments allows you to take benefits of the combination or the ability to reinvest your profits (e.g. dividends) overtime to produce even better profit possible. So time is your best friend as an investor and the fact that you can reinvest a 3% dividend can make a major difference in your wealth. As an example, simply keeping a 3% return will double your money every 33 years, assuming no increase in your dividend or share price. If you reinvest in more stock of the same type, your investment would double in almost 10 years!
You will pay less in taxes with Long Term Investments
Another advantage of long-term investments is that you will pay much less in taxes than if you are an active trader. Short-term traders or those who hold investments for 365 days or less pay tax at their maximum marginal tax rate. This could be anywhere from 10% to 40%. Taxes on long-term capital gains are either 0% to 20%, depending on your income. No matter how you look at it, keeping stocks for more than a year saves your money from the future tax.
Commissions are a later thought
When you are an active trader, commission costs can play an important role in your trading strategy. It is not uncommon for day traders to burn thousands of rupees in commission costs each year. As a long-term investor, you are not worried about a Rs 10 commission fee a few times, or even a few dozen times a year, when you add to your positions or probably sell a stock once. Commissions are a complete answer for the long-term investor in the form of benefits, as their earnings can exceed these minimum long-term costs and Investment. So the idea is, staying invested reduces the risk of losing big profits.
This policy has many advantages and disadvantages. If you need a comparison on the pros and cons of this topic click here. Also if you want to read about short-term investments read our other article by clicking here.
FAQs Regarding Long Term Investments
Unlike the traditional approach to setting financial goals, which focuses exclusively on retirement, the goal-based approach has a holistic view and covers all areas of your investment.
First, look at the fund’s past performance. A common mistake most investors make is to look at a fund’s current performance. It is important to look at the past performance of the funds to see how they behaved during the market violation. Look at the returns from the last three to five years.
Any profit resulting from the sale of equity funds or any other document is taxable on capital gains in the year in which such securities are sold. Any profit due to the increase in the current market price of a guarantee is not taxable unless the profit is realized on its transfer.
Editor’s Note | Understanding Long Term Investment Plans
2020 is a year that will remain etched in our memory for a long time. The COVID-19 pandemic has pulled the reins of the world’s economies. Most investors face losses of 20% to 30% and have wondered whether they should continue to invest or buy back and wait for the markets to recover.