Are you juggling to invest in long term or short term investment plans? Confused which one would best suit your needs? Read this article to gain more information.
So, folks, you may have some short term goals or long term goals which you may want to reach sooner or later.
But, juggling between the dilemma of short term investment plans and long term investment plans can be quite confusing.
Understanding the market along with the various risks associated with it may help you plan a good investment strategy. While some may act wisely and play safe while choosing their investment plans, some might not.
Besides, taking the help of a financial planner and charting out your investment goals will help you create a good and healthy financial portfolio.
So, worry NOT!
This article will highlight 4 best long term and short term investment plans that would strike a balance for you and the situation you are sailing in.
Best Long Term Investment Plans
Unit Linked Insurance Plans (ULIP)
Unit linked insurance plan otherwise known as ULIP is a type of an insurance product that not only offers risk cover to you but also offers various investment opportunities. You as a buyer have options to invest in various investment funds which in turn invest in mutual funds, bonds, stock etc.
In short, ULIP is a long term investment plan that offers an investor with investment and protection too!
This plan is basically linked to the capital market which gives you a flexibility to invest smartly either in equity market or debt funds depending solely as per your risk appetite.
Benefits such as transparent features, rider options for extra protection, flexibility to choose between different funds, tax benefits under section 10(10D), 80C and 80D, make ULIP one of the best long term investment plans to opt for.
Well, endowment plans are again a combination of insurance plus protection. Those who wish to grow their funds but also want protection, should ideally opt for endowment plans.
These plans are bought widely and are compatible for those who need lower financial setbacks. An endowment plan would be a perfect choice if you prefer getting death benefits and some survival returns too.
Having a life cover along with the savings component makes endowment plans one of the favorite choices to opt for long term investment. The bonuses declared by the insurer help in increasing the benefit you would be receiving on insured events. The drawback in these types of long term investment plans are that you shell out an extra premium as compared to other investment plans.
Endowment plans offer tax exemptions under section 10 (10)D on the amount that you receive as maturity benefit.
Public Provident Fund (PPF)
The Ministry of Finance (MOF) in India introduced the Public Provident Fund also known as PPF in the year 1968. These are tax-free savings avenues that makes for one of the most lucrative, safe and tax efficient long term investment plan in India.
In case you wish to create a good retirement corpus, PPF should be your ideal choice. All you need to do is deposit funds in the PPF accounts for certain number of years (fixed) in order to earn good returns on your savings.
The requirements for deposits here are low as well as inexpensive. The PPF accounts are backed-up by the Indian government which are easy to understand, easily accessible engaging a majority of Indians.
Being backed-up by Indian Government, the interest rates too are decided by the same entity. Interest for the financial year is calculated only as per the interest rates announced for that particular period.
The deposit period for the PPF accounts are 15 years which comes along with a lock-in period of 7 years, withdrawals can be made after a period of 7 years but are restricted to 50% of the account balance. You can open these accounts either by visiting the bank or the post-office. You may also open PPF accounts online either by visiting the banks website or via third-party financial service providers.
The PPF accounts are low-risk because of the strong back-up offered by the Indian government.
National Pension Scheme (NPS)
National Pension Scheme (NPS) is one of the cheapest market linked retirement scheme. Again this is a government launched product that gives you a proper guidance for investing your pension wealth.
You can invest in NPS only if you fall in the age group of 18 to 60 years. You have an option to invest in various pension funds.
If you are a NPS subscriber, you can easily switch between various pension funds. All you need to do is continue the fund for 1 year before you switch from one pension fund to another.
A minimum contribution of Rs.6, 000 annually and Rs.500 as a minimum one time contribution needs to be made by a subscriber for Tier- I accounts. For a Tier- II account, a minimum contribution of Rs.2, 000 annually and Rs.250 as a minimum one time contribution is required.
Benefits such as the flexibility to operate from anywhere in India, transparent investment conditions, flexibility to choose your investment options, assured retirement returns, tax benefits under Section 80CCE of the Income Tax Act, makes NPS one of the best choices of the long term investment plans.
Short Term Investment Plans
Fixed deposits popularly known as FD's are the shortest and the safest short term investment plans. An interest rate starting from 4 % annually is offered on these fixed deposits. The tenure for these deposits may vary from 7 days to 5 years. Tax-saving FD's are however booked for a tenure of 5 years and 10 years, which means the tenure here is fixed.
To avail better returns it is advisable that you take an FD for at least for a year to earn good returns. Bank fixed deposits are considered an easy short term investment option since you can also easily liquidate the fixed deposits in case of an emergency or a financial crunch.
You can also avail a loan against your fixed deposits. The interest rates for the loan taken is usually 1 to 2% more than the normal interest rate that the fixed deposits offer. The plus point of opting for a loan against your fixed deposits is that the interest rate is usually lower than the interest charged on the personal loans.
Also, bank fixed deposits are pretty much taxable. So, do keep this in mind! Basically, the idea behind booking an FD or making a short term investment is to protect your capital. Though the returns may be at a lower rate, the risk involved is very less.
A savings account is a type of deposit offered by a bank or any financial institution. You can keep extra funds in your savings account and earn interest offered on such saved funds. The added advantage of opening a savings account is that you automatically inculcate a habit of saving your funds in an efficient way.
There are various types of savings account such as regular savings account, salary savings account, senior citizen savings account, joint account, child savings account or minor savings account, women's savings account etc.
Needless to say, savings bank accounts are the lowest-risk short term investment plans. Though the main motive of opting for a savings account is liquidity, the earning, however, is pretty low.
Usually, banks offer an annual interest rate of around 4% to 7% on a savings account. It is one of the safest ways to access your funds. A person who keeps larger amount of funds in his savings bank account, may benefit the most by opting for this type of short term investment plan.
Nowadays, Airtel Payment Bank also offers a good interest rate of 7.25%. Thus, savings accounts are the easiest, less risk averse and the best short term investment option in India.
Equity-linked Saving Scheme (ELSS)
Equity-linked saving scheme or ELSS are funds that don't carry any restriction on the number of shares issued. These are open-ended funds which are diversified. The lock-in period for this type of short-term investment is 3 years and therefore you cannot liquidate or withdraw within this tenure.
On the maturity or at the time of withdrawals, you can find out the unlocked number of units and then redeem them basis the current Net Asset Value (NAV).
Section 80C of the Income Tax Act offers tax benefits if you opt for short-term investment options like ELSS. Therefore, the tax liability reduces too automatically. You can avail a deduction of maximum Rs.1.5 lakh that you have invested in a particular financial year. If you fall in the highest income slab, the good news is you can save tax of up to Rs.46, 350/- in a financial year.
ELSS being a type of mutual funds, at times carry a low-risk, medium-risk to high-risk factors. The best thing about these type of short term investments is that you can allocate a nominee too for the scheme opted.
Recurring deposits (RD)
Recurring deposits are the safest forms of short term investment plans. Here, you as an investor have all the rights to decide the monthly amount as well as the duration you wish to opt for. You need to ensure that you deposit the said amount for the said tenure to keep the RD going.
The tenure of the RD usually varies from 6 months minimum to 10 years maximum. The risk involved in investing your money in an RD is usually low to negligible. The interest rate on the RD's strictly depend on the tenure and amount you opt for. Usually, the interest rates offered on an RD may vary from 4% to 7%. Bank employees and senior citizens are usually offered a higher rate of interest.
A financial institute like a bank and post-office can offer a scheme of recurring deposits. The biggest drawback of opening an RD account is that they are not tax efficient. Besides, if the interest earned on a RD exceeds Rs.10, 000, a Tax Deductible at Source (TDS) would be applicable.
RD's are very much flexible in nature since they allow premature withdrawals too. At the end of the tenure, you will be eligible to earn an interest along with the capital invested.
Striking a good balance…
As they say, 'Until we can manage time, we can manage nothing else', it is important to manage your investments by keeping a goal in mind. Markets may act too differently for a 1 year old investment plan as well as for a 10 year old investment plan. However, to reap better returns it is important that you stay invested for a complete market cycle. There might be times when you may need the right mix of short-term as well as long-term returns. Striking a right balance for investing and having clearer financial goals will help you gain good returns.
Therefore, do not wait for extra-ordinary opportunities, seize common occasions and make them GREAT!
Recommended Read: Difference Between Term Insurance and ULIP