September 9, 2022
It is often tempting to treat the process of investing as a sprint and focus on quick wealth creation. However, if you want to go farther and run for longer, it is wise to treat it as a marathon; the more consistent you are, the better you are at achieving a stable future. Of course, this doesn’t negate the merits of short-term investments. Therefore, before choosing a strategy, you as an investor should conduct quality research to get a clear picture of the kind of assets you want to invest in.
In this blog, we’ll take you through financial instruments’ long-term side and help you better understand their composition and advantages.
What are long-term financial instruments?
Long-term financial instruments comprise investment options that provide high returns after an extended period, typically 5 years or more. Because you are pooling your money for the term, these investments usually come with a considerable risk appetite, helping you earn significant returns. Some of the most popular long-term investments in India are:
1. Public Provident Fund (PPF):
PPF is one of the most popular long-term investments as the government guarantees it. The fund provides reasonable interest rates and gives the investor tax exemption benefits on the interest earned. The maturity period for this fund is 15 years.
2. Mutual Funds:
Even someone who has no financial knowledge must have heard about mutual funds; their popularity has a lot to do with the returns and safety net they offer. They pool your money together and invest it in a diverse range of securities depending on the objectives of the scheme. You can also start a Systematic Investment Plan (SIP) to invest in mutual funds for a more consistent investment strategy. Moreover, multiple SIP calculators help you gauge your investment’s approximate maturity value over its lengthy course.
3. Stocks:
Stocks represent a share of the company’s value. Stocks can be bought for the short and long term, requiring considerable research and market analysis. They are the most profitable investment despite coming with extremely high risks. An increase in the company’s valuation automatically raises the value of your shares and vice versa. With intelligent market analysis, you can purchase and sell your shares at the right time to earn maximum returns in the long run.
4. Fixed Deposits:
Fixed deposits are an excellent long-term choice for investors looking to park some money in a completely risk-free instrument. They offer investment options for a maximum of 10 years, and their interest rates vary based on the amount and tenure. Some NBFCs can be considered for their best corporate FDs.
5. Gold:
Gold has traditionally held an emotional value within our culture. It also makes for an excellent long-term financial investment, considering its appreciation in the market. You can invest in gold by buying it physically or via gold deposit schemes, gold exchange-traded funds, and gold mutual funds.
6. Bonds:
Bonds are long-term debt instruments that offer a fixed interest rate on the capital. At maturity, the debtor pays the principal amount to the investor. You can choose to invest in either public or private bonds based on your financial objectives and ability to take risks.
Why should you consider investing long-term?
Long-term investments automatically imply that short-term market fluctuations do not impact the value of your capital and returns, considerably lowering the risks of loss. Furthermore, corrective market mechanisms ensure that any depreciation due to market volatility is cancelled out by capital appreciation, in the long run, owing to the same market movement. Thus, by maturity, your investments will pay off well. A long-term strategy is beneficial for people who do not have the time or bandwidth to regularly monitor the market and get impacted by its movement.
Along with its risk-balancing nature, long-term investments offer the benefit of compounding, leading to much higher returns in the future. The resulting profits can then be reinvested to create more wealth. This merit makes it very useful for students and young professionals who have just started and want to secure their future. Despite starting small, this strategy gives you better profits in the future.
One also cannot ignore the convenience of opting for long-term financial instruments. Along with being hassle-free and easy to navigate, these instruments significantly lower your taxation costs in case of PPF, Mutual Funds and Stocks. It is a lucrative strategy to save money, stress, and time while building a sizeable wealth to plan for your future.
Conclusion: Financial planning is not binary; you either go for short-term or long-term instruments. It requires a substantial diversification of wealth, assets, and risks to give you lucrative profits. Depending on your goals, the ball is in your court to choose what permutation and combination works best for you. However, our recommendation is that, long-term instruments should form a good part of that!
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