Do you know what is financial security? And have you ever thought if you are truly financially secure? Well if your strategy is to save and invest money for the long term, then my friend you are going to earn financial security and stability.
Get “Rich Quick” policy does not apply to Long term investments. Patience, consistency, and commitment are what you require to be a successful long-term investor. As you cannot clone yourself to keep continuing your office/business works, there will be a time when you will not dare to solely depend on your regular income and seek another revenue option such as long-term investment options which will provide major funds in the long run.
It’s called ‘Long-term’ for a reason, as you should invest your cash keeping in mind that you will not be able to utilize these funds even during those short critical financial crunches. However, you should always keep a tab on savings from time to time so that you have an idea of your investments.
Perks in investing for the Long term can’t be counted on fingertips. The most popular advantage of Long term investment is compound interest calculation and they are highly tax efficient. Investments that are held for more than three years or sometimes 5 years are known as Long-term investments.
Talking about the rewards of the maturity of long-term investment options, it draws a high amount of funds which is required for the major milestone of your life, be it your dream wedding, your son’s admission in a reputed college, or buying your dream home.
Best Long-Term Investment Options in India
There are numerous long-term investment options available in India. You must be very prudent in selecting the investments as they should be based on your long-run financial goals and the risk factors involved in the investment plans in India.
1. Investing in Real Estate
Investing in real estate is more than just buying yourself a dream house. Owners of land and houses usually ended up in the ruling class while the landless people led a life of hard labor and turmoil.
Investing in real estate has been considered the best asset since the conventional days and even after the market correction in 2016 Demonetization in India. Considering that it can fetch you a consistent passive income and great long-term investment when the land value rises over the period.
Of course, this does not mean that investing in real estate will fetch you gains. Although real estate investment can yield you high profits at the same time it can be a lot more complicated than investing in stocks or bonds.
Hers are a few factors, that should be kept in mind before you start investing in real estate.
- Start Small: Getting a recent promotion at work or a sudden hike in your business can make you get excited and feel the desire to buy yourself a piece of property. How smartly you plan your investment is very crucial, beginning your real estate investment by applying all your budget may push you off the road. Let’s say you are planning to invest in a duplex or a multistory apartment and rent it out for the means of paying your monthly loan installment. Importantly, you should also consider parking some reserve funds to mitigate the risk for the time when you have no renters at all for the property. An advisable plan is to start small and invest only 70% of your savings into real estate and park the remaining funds to mitigate unforeseen scenarios.
- Pay with Cash: Every loan borrower you meet, you hear how bad it is to carry debt. Picking up a mortgage loan isn’t the brightest idea; many financial experts advise against borrowing money to invest in real estate. Buying real estate with cash will allow you to sell the property at your wish. On the other hand, if you avail mortgage loan your property will be leveraged and you will not have control to sell it out. Cash buyers mostly crack the property at a lower cost and receive a cash discount. Real estate sellers prefer clients who are willing to pay cash because they will not have to worry about the client backing out of the agreement as the financing Bank or NBFC declines the loan request.
- Research the Property Carefully: You should ensure that the seller has a clear title deed and NOCs from the concerned authorities. Commencement certificates for work, environment clearance, and approved building plans should be thoroughly checked before zeroing in on the property.
2. Public Provident Fund
For several decades Public provident funds have been a favorite long-term investment option in India. PPF scheme suits investors who desire no volatility and stable returns.
A public provident fund is the highest chosen long-term investment option, especially among salaried people. It is directly backed by the government of India, which provides an interest rate (In 2019 PPF interest rate was 8%) and tax benefits.
PPF is a 15-year investment scheme, and it can be extended indeterminately in a slab of 5 years. It can be easily opened from a Bank branch or a Post office. Few major banks in India such as HDFC and AXIS provide a facility to open PPF accounts online.
Features of Public Provident Funds
You should know that Govt of India launched Public provident funds with the sole reason of mobilizing small savings of Indian residents and providing reasonable returns with tax benefits.
- Minimum and Maximum Cap: Since the purpose of PPF is to mobilize small savings, it has a minimum subscription of as low as ₹500, and the maximum cap of a public provident fund cannot be more than ₹150000 per year. While the minimum amount which is mandatory to deposit each year is ₹500, in case you have missed to pay the minimum amount the penalty charge would be ₹50 per year. If you contribute more than ₹150000 in a year, the excess amount will be treated as irregular and it will not yield any interest amount. Also, you will not be able to exempt income tax on the excess contribution.
- Time Horizon: A Public provident fund account usually matures at the tenor of 15 years, post which the principal investment and the yield interest amount shall be handed over to the account holder. However, you will also have the option to extend the maturity date which is predefined to multiple sets of 5 years.
- Rate of Interest: A public provident fund is a risk-free investment option, as a PPF is a debt-oriented asset. This means that funds are collected by the Government of India and it is not redirected to the equity market. Depending on the yield of government securities, the rate of interest on public provident funds is decided by the government quarterly. (In the year 2019 PPF interest rate is 8%)
- Income Tax benefit: A Majorly salaried person opts for a PPF account as it offers a complete tax benefit package. Public provident funds fall under the EEE(Exempt-Exempt-Exempt) category. In other words, the amount invested in the PPF scheme is deductible under Income tax section 80C.
3. Gold Investment
India is the largest consumer of Gold, with an overall consumption of more than 700 tons which is one-third of the world’s gold consumption. Easy to buy and easy to liquefy, Gold can be relied upon in your financial tough time.
Gold ornaments are highly popular among Indian married women. In India Gold is considered a symbol of high status and a means to show off prosperity. Ornaments made of gold are not only used as a wearable, nevertheless, they also work as an asset to phase out financial emergencies in Indian households.
Gold has many selling points, such as High liquidity and inflation-beating capacity. Even though we have seen many many falls in Gold prices, however, it always comes back stronger than ever.
In the year 2007 when the equity market was under downfall, Gold investments showed consistency and performed well. This indicated that Gold is negatively correlated with equity investments.
Many financial advisers emphasize including Gold investment in your portfolio, as it reduces the volatility and Gold has always proven to be in line with the inflation rate.
4. Equity Investment for Long Term
While real estate, Public Provident Fund, and gold are popular long-term investment options, another avenue that demands consideration is equity investment. Equity, also known as stocks or shares, represents ownership in a company. Unlike other investment options, equities are traded on the stock market, and their values can fluctuate over time.
Why Consider Equity Investment?
Equity investment offers the potential for significant returns over the long term. Companies often grow in value, and as a shareholder, you can benefit from this growth through capital appreciation. Additionally, many companies pay dividends to their shareholders, providing a regular income stream.
How to Invest in Equities?
There are various ways to invest in equities, each catering to different preferences and risk appetites.
- Direct Stock Purchase: Open a demat and trading account with a reputable stock broker in India, fund it, research stocks, and place orders for direct stock purchase. Choose between market and limit orders, diversify your portfolio, and monitor investments regularly. Focus on long-term growth, stay informed, and consider reinvesting dividends to accelerate wealth accumulation
- Mutual Funds: Mutual funds pool money from investors to create a diversified portfolio of stocks, bonds, or other securities. Professionally managed, they offer a convenient way for individuals to invest with shared risk and rewards. Investors buy units, and returns are proportionate to their investment. Ideal for those seeking diversification without managing individual securities.
- Exchange-traded funds (ETFs): Exchange-traded funds (ETFs) are investment funds traded on stock exchanges. They provide exposure to diverse assets like stocks, bonds, or commodities. Similar to mutual funds, ETFs offer a cost-effective way for investors to buy into a broad market or sector, with prices fluctuating throughout the trading day.
How to Invest in Gold?
So, let us discuss the diverse ways of purchasing and investing in Gold.
1. Investing in Gold ETFs
Gold Exchange-traded funds are a nonphysical method of investing in Gold. However, this fund is fully backed by Gold, and Gold ETF prices move according to the gold price. Apart from possessing a yellow metal, Investing in Gold ETFs is as same as Investing directly in physical gold bars or ornaments. Gold ETFs are managed by professional fund managers and you can buy and sell your Gold EFTs directly from your DEMAT account.
2. Investing in e-Gold
In the year 2010, India’s National spot exchange introduced E-Gold. As we know throughout the world, the commodity market is dominated by precious metals like Gold and Silver. E-gold is an electronic means to own a gold holding. DEMAT provides you a certificate for the gold you bought and it can be instantly sold or exchanged with physical gold. The best perk of E-Gold is that you can invest in gold with very lover denominations as compared to physical gold. Few financial advice to invest in E-gold as it provides higher returns than Gold ETFs in the longer term since E-gold does not charge a management fee, unlike Gold ETFs.
3. Gold Mutual Funds
Gold mutual funds are nowhere related to Gold prices, as they provide you exposure to shares of companies or groups of the organization that are directly involved in Gold mining and Gold production.
Most financial advisers suggest mixing your equity portfolio with Gold mutual funds. You would also like to know that last year Gold funds were given 3.95 % returns and even in a 3 3-month period it has marked returns up to 3.07%.
Gold Mutual funds protect your portfolio from volatility due to the economic and financial crisis. Gold asset class also provides the portfolios the ability to withstand inflation.
