Good Long-Term Investment Stocks - Detailed Guide

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Key Takeaways: Long-term investments are mostly investments that help you grow your corpus over time – 3, 5, 10, or more years. Investors choose long-term investments to meet their long-term goals. Due to the extended investment durations, long-term investments help you generate inflation-adjusted returns while you benefit from the power of compounding. Common examples include fixed deposits, pension scheme investments, mutual funds, ULIPs and more.

Investing your money is undoubtedly the best way to accumulate wealth and secure your financial future. As an investor, you aim to earn high returns on your investment as quickly as possible. However, any investment that generates quick returns in a short duration is usually risky. Such an investment can jeopardise your capital, especially in an unpredictable market. This is why most investors tend to lean towards long-term investment plans. Let us find out more about long-term investments in this article.

What Are Long-Term Investments?

Long-term investments are financial instruments that come with investment durations exceeding one year. When you choose a long-term investment vehicle, you are essentially choosing to stay invested in the same security for a span of 3, 5, 10, or more years. A long-term investment allows you to fulfil your long-term goals. Creating long-term investment strategies is all about picking suitable investments and waiting them out patiently till you are ready to cash in to meet your financial goals.

There are several long-term investment options you can opt for depending upon your financial needs. You could go for the safest investment options, such as a Fixed Deposit and Public Provident Fund, or dial-up your risk (and potential returns) by investing in stocks and mutual funds.

What Are The Benefits Of Long-Term Investments Plans?

Staying invested for the long haul can lead to several benefits. They are as under:

Low risk

Staying invested for a longer duration minimises the risk of losing your capital investment amount. While no investment is immune to market fluctuations, a long-term investment gives you enough time to bounce back. In a long-term investment, the price of your stock is bound to grow.

Additionally, long-term investments give you time and opportunity to rectify your mistakes. Finally, you can expand and diversify your portfolio to balance out the loss incurred if and when required.

Informed investment decision which are based on facts and information will always yield you handsome returns in the long-term. You can simply invest in standard, good long-term investment stocks to ensure your investment is in the right hands.

Power of compounding

To benefit from the wonders of compounded returns, you must have a long-term strategy. The more time you give your investments to grow, the higher the amount you would get.

For example – Venkat invests INR 1,000 and earns a 5% dividend on this investment. In year one, Venkat makes INR 50, which he reinvests into his fund. In year two, his returns are INR 52.5 because he reinvested the INR 50 that he earned on his initial investment. If he continues reinvesting his returns over several years, Venkat could make a sizeable profit due to the power of compounding.

Tax Savings & Lower Expense Ratios

Long-term investment plans come with certain tax benefits too. In India, the gains generated through short-term investments are taxed higher than the tax rates applicable to long-term capital gains. So, with long-term investments, you can grow your wealth while saving on tax outgo. By creating a long-term investment account and following through with it, you can avail tax benefits under the Income Tax Act of India, 1961. Since you typically remain invested for several years in a long-term investment, you also end up saving a lot of money in trading fees and commission compared to short-term investments.

Easy and convenient

While investing in long-term investments, you do not require exceptional technical skills or incredible financial know-how. What you need is patience and a solid investment instrument that ensures you can fulfil the goals you intend to achieve. Once you make an informed investment decision, you can sit back, relax, and watch your money grow without worrying about anything. You can even set up a one-time, standing instruction with your bank to facilitate auto-debit of the investment amounts directly from your bank account so that you do not have to worry about the due date. Additionally, long-term investment plans are incredibly easy to buy. You can invest online via the internet or mobile banking.

Long-term goals

The crux of long-term investment is that it enables you to achieve your long-term financial goals. You can invest and accumulate funds for many significant life milestones like marriage, buying a home, creating a retirement corpus, etc. Long-term investment for a child is a common investment strategy opted by parents to pay for the higher education of their children.

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What Are The Best Investments Plans For The Long-Term?

There are several long-term investment options for you to choose from, depending on whether you want to accumulate wealth for your retirement, create a corpus to fund the expenses in your children's lives, and so on. Let us look into a few long-term investment plans:

Fixed Deposit

Almost every bank in India offers this traditional form of investment that is also considered one of the safest. With Fixed Deposits, you can invest any big or small amount for a fixed period and earn a fixed rate of return on it. You can choose investment durations lasting from 7 days to 10 years and earn interest ranging from 3% and 6.5% per annum. If your end-goal is creating a corpus through Fixed Deposits, you should opt for the cumulative FDs instead of those providing monthly or quarterly interest payments.

National Pension Scheme

NPS is a government-backed retirement-cum-pension scheme for providing regular income to investors after retirement. This investment option has two-fold benefits as it leads to wealth accumulation and provides a monthly pension when you retire. Additionally, this investment also qualifies for tax benefits.

Public Provident Fund

Deemed as one of the best long-term investment options, the PPF scheme is a risk-free investment option, which also generates decent returns. PPF, with its 15 years lock-in period, is one of the longest-duration investment vehicles in India. You can even extend the plan in blocks of five years. The government fixes the interest rate on PPF investments and reviews it each quarter. The interest on PPF is usually the highest among all types of deposit instruments. PPF comes with benefits like premature withdrawal after the 7th year of opening the account and tax deduction benefits of up to INR 150,000 under Section 80C.

Unit-Linked Insurance Plans

A ULIP is a long-term investment option that combines insurance and investment. In ULIPs, one portion of the premium you pay goes towards insurance, and the other is invested into debt markets and equities. ULIPs generate decent returns but are comparatively risky due to the portion invested in stocks and equities. ULIPs also offer tax benefits under Section 80C on premium payments up to INR 150,000.

Stock Funds – Mutual Funds and ETF

A mutual fund is an open-ended, professionally managed investment instrument. They enable you to diversify your investment due to the broad category of mutual funds available for investments, thus mitigating your investment risks. You can choose from equity, debt, hybrid, or thematic mutual funds. Also, you can invest via lumpsum or utilise the SIP (systematic investment plan) investment method, wherein each instalment can be as low as INR 500.

Exchange Traded Fund or ETF long-term investment is another good investment choice that is very similar to Mutual funds. The significant difference is that ETFs are listed on all the major stock market exchanges in India. You can buy and sell them per your requirement during the regular equity trading hours.

Stock Market Investment

A long-term equity investment is also a common and rewarding choice of investment in India. While it can be rewarding, stock market investments come with their fair share of risks. Also, you can spread the risk by creating a balanced and diversified portfolio, but such an investment will still require regular monitoring. However, there are many good long-term investment stocks available in the market, and you can invest in them after assessing your risk appetite. To earn profits from stock market investments, you should be prepared to stay invested for the long-term and not let short-term volatility deter you or influence your decision to exit a fund.

Real Estate

Real estate is and will always be one of the finest, safest, and time-tested long-term investment strategies. You can invest in any sector from hospitality to commercial, retail to housing and get guaranteed returns by staying invested for a longer-term. Note that real estate investments typically require lump sum investments. In essence, you need to spend a fortune to build a fortune.

You can choose the best investment plan for long-term from these varied options based on your investment objectives and risk capacity.

Things to Remember

Long-term investments enable you to earn decent returns while protecting your capital, making them less risky investment instruments. These investments are ideal for people with conservative risk appetites. You need to ensure you stick to the predetermined investment term to accrue the promised return rate. While you must hang on to your investments in the light of volatile market conditions, you must also not hesitate to sell off failing investments to reduce further losses.

Conclusion: When it comes to it, long-term investments are all about focusing on the future and keeping a long-term perspective. If you want someone who can understand and help you achieve your long-term financial goals, you should get in touch with an investment manager. With investment management facilities, you can carve your investment plan and ensure you can fulfil it per your investment objectives and risk profile.

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*Disclaimer: This article is published purely from an information perspective and it should not be deduced that the offering is available from DBS Bank India Limited or in partnership with any of its channel partners.

The purpose of this blog is not to provide advice but to provide information. Sound professional advice should be taken before making any investment decisions. The bank will not be responsible for any tax loss/other loss suffered by a person acting on the above.