Long-Term Investment Plans in 2022: Definition, Benefits & Options

When you hold an investment for a longer time, you have the power of compounding working in your favour. This means that the profit or interest you earn annually is added to the principal amount to give you bigger gains the following year.

Let’s understand this with an example.

Suppose you invest Rs. 1,000 in an asset and get 5% p.a. interest compounded annually. So, for the 1st year, your interest earning will be Rs. 50. But due to compounding the next year’s principal amount will be Rs. 1050, and the interest earned will increase to Rs. 52.5. This increase in returns will continue as long as you stay invested and let compounding of your investment continue. You can easily use a compound interest calculator to estimate the growth of your investment over time.

Making long-term investments would help protect your capital against short-term market volatility. So, by staying invested for a longer tenure, the investment risks involved with short-term ups and downs in the market will be minimized.

This is primarily because, you get more time to choose long-term investment options that can help you diversify your investments and get an appropriate balance between returns and potential risks from these investments.

Many long-term investment plans can give you the benefit of tax deductions under various sections of the Income Tax Act like Section 80C. Such long-term tax-saving investment options like PPF, ULIPs, tax saver FD, ELSS mutual funds provide a dual benefit. You end up paying less tax by making the investments and also get the opportunity to grow your wealth through the benefit of compounding by staying invested for the long-term.

One of the key reasons why people invest for the long term is to try and achieve long-term financial goals. Such goals can be as widely varied as buying a house, saving for children’s higher education, ensuring adequate retirement planning, etc. Achieving these goals typically requires a large corpus and can be made possible only by making long-term investments that provide compounding benefits.

Knowing these multiple benefits must have certainly tempted you to go ahead with the best long-term investment plan. But how to pick a long-term investment plan that is suited for your needs? Read on to find out.

Your investment can be made to fund your retirement plan or beat inflation; you can achieve it by making a thoughtful decision. But first, decide on the approximate capital you will need by the end of it to succeed in your goal. Factor in your income, and then determine the amount you can spare for your investment.

By staying invested for the long term, your investments will have greater opportunity to grow through compounding. So, the earlier you start, the longer you can stay invested and the greater your chances of profiting from your investments. So, being an early bird when it comes to making investments is beneficial.

Equities whether they are equity mutual funds or stocks are considered ideal for long-term investments. These are especially known for giving inflation-beating gains. All you need to do is assess the market carefully before investing. Remaining committed to your investment is crucial for higher profits. Short-term market dips are usually temporary and these typically do not impact returns from long-term investments.

The market is always full of ‘expert’ opinions, suggesting where to invest and where not. One should not keep changing long-term investments based on such noise. Shutting out this noise and staying the course is the ideal way to ensure you benefit from long-term growth and high returns from your investments.

You should never invest in only one long-term investment plan. For ideal returns, one needs to build a portfolio of diverse long-term instruments to minimize potential investment risks. Such diversification includes investing in asset classes like gold investments, equities, debt, real estate, etc. that can help with better risk management and generate higher long-term returns.

It’s very convenient to invest in a mutual fund as you can start your investment with a sum that is as low as ₹500. The best long-term investment plan in the category is an equity mutual fund, which gives the best return. But note that the risk involved in this category is higher too.

Unit Linked Insurance Plans or ULIPs are a type of long term investment option that provides investors with 3 benefits through a single investment. So, an investor gets wealth creation, life insurance cover and tax savings under Section 80C through a single investment. One needs to stay invested for a minimum of 5 years in ULIPs which makes it a suitable option for a long term investment plan.

National Pension System (NPS) is a retirement and pension scheme that is open to all individuals be they salaried or self-employed. NPS allows investors to diversify their retirement savings across 4 key asset classes – Equity, Corporate Bonds, Government Bonds and Alternative Investment Funds (AIFs). What’s more, NPS investments undergoes superannuation only after the investor turns 60 years of age, so, investors can stay invested for the long term to get maximum benefits of compounding.

Public Provident Fund has been the go to long-term investment option in India for. You will need to lock in your money for 15 years under this scheme, but you get assured returns on your investment and tax benefits on amount invested along with tax free PPF interest earning and maturity amount.

Long-term investments in fixed deposits are usually favoured by risk-averse investors seeking assured returns from their investment. There are multiple options to choose from too such as fixed deposit at banks, FD at post office and even corporate FD. What’s more, you also have to option of getting tax savings under Section 80C if you opt for a 5-year tax saver FD offered by banks and the post office.

The above list is not exhaustive and you can opt for many other long-term investment options like Voluntary Provident Fund , National Savings Certificate, Kisan Vikas Patra and more.