5 Best Long-Term Investment Options -There are myriad strategies when it comes to investing. While there are pros and cons to every investment strategy, long-term investing is a great way for investors to maximize their returns and mitigate risks. It also helps them diversify their portfolio and offers tax benefits.
However, choosing the right investments is a tedious task and may leave you feeling overwhelmed. In this article, we discuss the best investment options for next 5 years.
5 Best Long-Term Investment Options
Investing for long term is the best option always and the best way to maximize your profit is to invest systematically may be in SIP mode. Here we are discussing 5 best long-term investment options considering current global as well as domestic financial condition.
Investing in Direct equity
Investing in Direct equity
An equity investment refers to investing in the shares of a company in the stock market. Investing in equity is the best investment if one can do it in a proper way.
Investing in equities can multiply your money over time and is one of the best investments in the long term. That said, they do come with significant risks and it is important to pick the right stocks. As a beginner you need to understand complete company insights for investment in the company.
As a beginner, it is best to invest in blue chip companies. They are well-established firms with good reputation and strong fundamentals. Additionally, you must make sure to diversify your portfolio across various sectors.
The average return on stocks is about 12% per year. However, the returns largely depend on the stocks you pick. You may be able to generate even better returns by investing in more volatile stocks through proper research. As said, investing directly in stock market is risky. Do not invest without proper guidance or proper knowledge. Learn company insights for investment with us before jumping to Invest in Direct equity.
Investing Through Equity mutual funds
Another way to reduce the risk while investing in stocks is to invest in equity mutual funds. These mutual funds invest in multiple stocks, allowing you to diversify your portfolio. This way, you allow professional fund managers to choose the stocks. These fund managers are expert in their respective field and invest in stocks through proper research.
A good mutual fund should yield high returns and have a low expense ratio. Some of the best equity mutual funds include Parag Parikh Flexi Cap Fund, Axis Midcap Fund, and Canara Robeco Bluechip Equity Fund. You can generate average returns of 10-15% by investing in these funds.
Investing in Gold
Traditionally, purchasing Gold attracts Indian. This yellow metal has signified wealth creator since ancient times. Even today Investing in Gold is an important part of the investment portfolio. Expert advice to invest some portion of your saving in Gold. Investing in gold helps to hedge your portfolio against inflation. This is because investors are inclined to invest in gold when inflation rises or the global economy is not performing well.
However, currently, investing in gold and silver has become a significant part of investment decision.
Physical gold can be bought in the form of gold bars and coins. Investors should avoid buying jewellery as a part investment since it is sold at a marked-up price and is rarely profitable. Although traditionally gold could only be bought in physical form, it presents the issue of purity and storage expenses.
Thus, it is best to buy digital gold in the form of mutual funds and ETFs. The companies which have the license to sell digital gold including Augmont Gold, MMTC-PAMP India and another joint venture company between MMTC and a Swiss firm names MKS PAMP.
Some of the best options are HDFC Gold Fund, Axis Gold Fund, Nippon India Gold ETF, and SBI Gold ETF. Alternatively, you may opt for sovereign bonds that can be bought from nationalized banks. As for the returns, gold can generate about 11-12% returns annually.
Investing in Real Estate
Real estate is one of the oldest investment options in India as it is a low-risk investment that provides high returns in the long run. It also offers a steady source of income and several tax benefits. The downside, however, is that real estate has low liquidity. At the time of need if you want to sell the property, you may be forced to sell at a steep discount. Even if you need only a fraction of the money, you may need to sell the entire property. Moreover, it takes a comparatively large corpus at a time to invest in real estate.
The good news is that you can invest in real estate for as low as a few hundred rupees by investing in Real Estate Investments Trusts (REITs). REITs are SEBI-regulated companies that own income-producing real estate and are listed on the stock exchanges. Some of the best REITs include Mindspace Business Parks REIT, Brookfield India Real Estate Trust REIT, and Embassy Office Parks REIT. The annual return from Investing in Real Estate is approximately 10%.
Investing Through Debt Mutual Funds
Debt funds are mutual funds that invest in fixed-income securities, such as corporate bonds, T-bills, government securities, and debentures. Debt mutual funds offer stable returns, even when there is a steep market correction. In addition to this, investing in debt funds offers attractive tax benefits to investors as a tax deduction at source (TDS) doesn’t apply to debt funds.
Moreover, you can avail of indexation benefits if you hold debt funds for more than three years, reducing your tax outflow. Some of the best debt mutual funds are ICICI Prudential Long Term Bond Fund, SBI Magnum Gilt Fund, and HDFC Floating Rate Debt Plan. The average returns of debt funds are between 7-8%.
Investing in Bank Fixed Deposits (FDs)
FDs are one type of debt fund. They are one of the most popular investment options in India as they provide guaranteed returns. The returns on FD can range anywhere between 3-7.5%. Investors may also opt for a tax-saving FD, which has a lock-in period of 5 years. It makes you eligible for tax deductions under Section 80C of the Income Tax Act and allows you to claim up to Rs 1.5 lakh each financial year.
Although FDs are one of the safest investment options out there, it comes with certain drawbacks. The post-tax returns often cease to beat inflation. This means that your wealth is eroding with time. The liquidity of FDs is another concern since banks levy a penalty for withdrawing your money prematurely.
Investing with a long-term horizon compounds your wealth over time and allows you to maximize your returns. An investor needs to make savvy investment choices. It is important to cultivate a good understanding of the different investment assets available in the market.
Optimal asset allocation is vital to generate good returns in the long run. Asset allocations primarily depend on your personal goals, age, and risk appetite. To generate worthwhile returns in 5 years, in 5 best long-term Investment options, we recommend a 60% allocation in equities – including equities mutual fund, 10% allocation in gold, 10% allocation in real estate, and 20% allocation in debt funds.
This way, you can take advantage of the long-term returns of stocks and alternate assets, while gold and fixed deposits hedge your portfolio.
Finally, you must stick to your financial strategy and remain patient during market volatility, as they typically recover with time.
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