Long-term investments are those investments that are non-current in nature, i.e. that are to be held for a period of more than 1 year. These investments are planned to meet long-term financial goals, such as children’s higher education, children’s marriage, buying a new house, retirement planning, etc. Long-term investments help to fulfil an individual’s financial objectives if careful planning is done. To get an estimate of growth & returns & make strategies, one can also use tools like an Investment Calculator.
These investments are considered to be secure & safe, & they tend to grow if kept for a longer tenure of time. Some examples of long-term investments are the Public Provident Fund (PPF), stocks, mutual funds, real estate, bonds, ULIPs, gold, equity funds, fixed deposits, National pension schemes, etc. The longer you hold your investments, the more they will reap returns through a compounding nature, where earnings on earnings get generated.
Reasons to Choose Long-Term Investments
Provided are the reasons to choose the long-term investments:
- Capital Appreciation:
As we know, long-term investments lead to growth & help to generate considerable returns, further leading to growth & wealth creation.
- The Power of Compounding:
The compounding effect leads to the growth of funds over a period of time. The longer the investment period, the more the compounding & wealth creation are.
- Beating Inflation:
They help beat inflation or some other factors as well; hence,your purchasing power remains unharmed.
- Achieving Financial Goals:
Long-term investments help secure the financial future, be it buying a house, children’s education, marriage, or pension planning.
Things to Be Considered while Buying Long-Term Investments
Provided are the things that should be considered while buying long-term investments:
- Risk Tolerance:
The investments that attract higher risk also offer high returns but also lead to high volatility of funds. Hence, one should carefully consider the risk tolerance level.
- Investment Horizon:
Analyse the tenure of your investments. In general, they should be kept for more than 5 years to reap good results in terms of wealth creation & growth of funds.
- Diversification:
One should invest the funds by spreading them over different ranges of investment classes because it protects you from any negative effect of investing in one single asset class.
- Tax Implications:
Understand the tax implications & benefits of which investments attract tax, which investments allow tax deduction, etc.
- Liquidity:
Assess the fund’s liquidity to determine whether it can be withdrawn in case of an emergency situation.
- Professional Advice:
Also, you can get professional advice from a financial advisor who will help you understand your financial objectives, risk appetite, & suitable investment plans best suited.
Difference between Long-Term & Short-Term Investments
Provided below are the difference between the long-term & short-term investments:
| Criteria | Long-Term Investments | Short-Term Investments |
| Policy Tenure | Above 1 year | Below 1 year |
| Cost of Premium | Higher premium costs | Lower cost of premium |
| Add On Covers | Available | Not Available |
| Pre-Existing Illness | It covers pre-existing diseases in some cases, generally after a cooling period. | Not exactly, except in some cases like COVID-19 |
| Best Suited For | Those who seek long-term financial protection | International students, NRIs or some certain conditions |
| Renewability | After 2-3 years | Frequently |
Benefits of Long-Term Investments
Provided are the benefits of Long Term Investment Plan:
- Power of compounding:
Compounding is a way to earn the returns on the total investment amount & the interest earned thereon, which leads to the exponential growth of funds. The longer the tenure, the more the returns.
- Security from short-term volatility:
As it is quite impossible to predict accurate future market conditions, it is advised to invest in the long term to get the maximum returns.
- Goal-centric planning:
As these funds are meant for a longer tenure, they can help achieve many life milestones, such as buying a house, retirement, children’s education, children’s marriage, etc.
- Convenience:
They are convenient enough as you need to initiate an auto-debit from your bank or card.
- Tax benefits:
Apart from the growth of money, long-term investments also help in tax planning.
- Lesser effect of market fluctuations:
There is very little impact of small market fluctuations in comparison to short-term investments.
- More time to try different funds for maximum returns:
They allow you to switch between the funds & try them for maximum returns.
There are some added advantages in the case of ULIPs, which are as mentioned below:
- Flexible investment options:
It provides flexibility to adjust between the funds, allowing you to switch your investments as per the market conditions &your risk tolerance level.
- Goal-oriented planning:
As ULIPS comes with a minimum lock-in period of 5 years, it can be used for long-term investments to fulfil long-term objectives, such as buying a new house, children’s education, children’s marriage, etc.
- Loyalty additions:
Get your long-term investments to earn loyalty additions that keep on growing money.
- Partial withdrawal:
One can withdraw 20% of your long-term investment in ULIPs at the start of 6th year. The only condition is that the amount should not be invested in the Discontinued Policy Fund to meet future requirements.
- Life cover:
It also protects the financial future of the family members in the absence of the policyholder, i.e., the nominees will receive a lump sum amount in case of the policyholder’s sudden demise.
Conclusion
A long-term investment will help meet future financial obligations, such as children’s education, children’s marriage, buying a new house, pension plans, etc.When planning an investment, some factors need to be considered, such as the financial objective, risk appetite, etc. As all individuals are different, their requirements are different; one can also seek professional advice to make informed decisions & for better portfolio management.
