Selecting the best long-term investment is vital when it comes to securing my financial future. In India, there are various choices to invest and with them comes their share of risk v/s rewards matrix.
Well, after reading, researching, analyzing, and personal reflection, I was able to narrow down the best investment options that will allow me to grow my wealth over time and fit in with my goals.
What is Long-Term Investments?
Long-terms investments are investments that are held for more or less more than five years. These investments have the advantage of compounding their performance, inflation protection and less exposure to short-term market volatility. I want to find some stable, growth-oriented, tax-efficient options.
Best Long-Term Investment Options in India
1. Equity Mutual Funds
Equity funds have always proved to be one of the best investment options. Generally, they invest in shares, and therefore have high growth potential. Over the last decade, categories of funds like large-cap, flexi-cap and small-cap funds have given annualized returns between 14 – 24%.
I prefer SIPs (Systematic Investment Plans) in equity funds as it offers a disciplined form of investing and a way to average out the market fluctuations.
Funds such as Parag Parikh Flexi Cap and Nippon India Small Cap Fund have had an impressive track record as well, and are suitable for long-term wealth creation.
2. Public Provident Fund (PPF)
For people like me who are risk averse, PPF is a good bet. With the government backing, it provides tax-free returns subject to a lock-in of 15 years. The current interest rate is about 7-8%, and contributions up to ₹1.5 lakh a year are qualified for tax deductions under Section 80C.
The best thing about the PPF is that it is safe and you are assured of returns. Because it’s a long-term product, I can extend it in five-year blocks after it matures, and it can thus serve as a flexible retirement planning tool.
3. National Pension System (NPS)
The NPS is no different and makes for a wonderful long-term investment, especially when it comes to retirement planning. It lets me decide how much to invest in equity and corporate and government bonds according to my appetite for risk. I can avail extra tax benefits under Section 80CCD(1B) of the Act on ₹50,000 above ₹1.5 lakh under Section 80C.
60% of the fund will be tax-free on maturity with the balance of 40% to be used to buy an annuity. That said, NPS stays a good option for disciplined retirement saving, even with this constriction.
4. Direct Equity (Stocks)
If I invest directly in stocks, I can potentially become wealthy over time, assuming I choose fundamentally sound companies.
ITC, Tata Motors and Bajaj Finance are few of the stocks that have given good long term returns. But this is a long-shot play that requires a lot of investigation, time and a fairly high level of risk.
I spread my stock portfolio across sectors to spread out risk. Stable dividend-paying dividend-growing blue-chip stocks are the bedrock of my stock investments.
5. Unit-Linked Insurance Plans (ULIPs)
ULIPs are a two-in-one product that gives insurance as well as investment. Some part of my premium goes towards life cover, the rest in equities or debt funds. The contemporary variants of ULIPs come with reduced charges and provide the flexibility of fund switching.
Tax benefits on the premium and tax-free returns on maturity (Section 80C and Section 10(10D)) make ULIPs an attractive proposition. But I make certain I stay invested for a minimum of 10 years to ensure maximum returns.
6. Real Estate
Historically, real estate has been a popular long-term form of investment in India. Residential and commercial properties provide rental and capital appreciation. But liquidity is a concern and returns can be affected by market movements.
To further spread the risk I look at Real Estate Investment Trusts (REITs) which enable me to invest in property without buying houses. The stocks can provide a yield and are more liquid than directly owning property.
7. Gold Investments
Gold is used as a hedge against inflation and currency devaluation. Since holding physical gold has storage issues, I like Sovereign Gold Bonds (SGBs) issued by the RBI. They provide interest income, tax benefits on capital gains and no storage risk.
Gold ETFs also present a easy way of investing in gold, allowing for liquidity and ease of trading. I have a small position of my portfolio that is gold for diversification.
8. Fixed Deposit (FD) and Senior Citizen Savings Scheme (SCSS)
For assured returns, bank FDs and SCSS are safe options. FDs are liquid, SCSS offers higher rate of interest to senior citizens. But the returns post taxes may not always beat inflation,so I think of post-tax returns as part of the stability side of the portfolio, not the growth side.
9. Employee Provident Fund (EPF)
For a person like me who is a salaried person, EPF is a must, but good long term investment. Both the employer and employee contributions grow without taxes and they earn interest that generally exceeds what can be earned in most fixed income instruments. The corpus is available only at the time of retirement, providing discipline for savings.
10. Mutual Funds – Hybrid and ELSS
Hybrid funds provide a mix of equity and debt which tend to lower the volatility and provide decent returns. Equity-Linked Savings Schemes (ELSS) bear tax benefits of Section 80C with a 3-year lock in, making it good for long-term wealth creation with tax saving.
Things to Consider Before Making a Long-term Investment
Risk Appetite
I consider my risk tolerance before I invest. For an aggressive investor, equity is a suitable investment, for a conservative investor, PPF or FDs are more favourable.
Financial Goals
I allocate investments to specific goals — retirement, child’s education, home purchase. Equity funds and NPS for retirement, PPF for medium term needs
Liquidity Needs
FDs and mutual funds offer liquidity Other investments like PPF and EPF come with a lock-in period. I make sure that I don’t tie up all my money in illiquid products.
Tax Efficiency
ELSS, PPF, NPS other tax-saving instruments, bring down the taxable income and generate wealth. I gravitate toward tax-efficient investments to get the most out post-tax returns.
Diversification
Diversity in equity, debt, gold, and real estate will provide stability. I do not overexpose myself to any particular asset class.
Final Thoughts
The ideal long-term investment in India would vary based on individual financial goals, risk appetite, and investment horizon. For I, a mix of equity MFs, PPF and direct stocks serve me well. and not selling, I take a look at my portfolio every now and then and tweak things up and down based on the market.
That with a little control and the miracle of compound interest, even I, will be able to ensure financial safety for myself, with novel-worthy goals for the long-term.
Whether it’s retirement, building wealth or overall tax planning, the right investment plan can help take you there.