Best Investment Plan For 15-20 Years
The successful investment plans are a combination of both insurances as well as investment. The premium paid provides insurance coverage while the remaining fund is financial instruments based on your risk appetite. This sort of investment planning is beneficial for enhancing the overall wealth corpus and also helps in tax-saving.
Investment plans are ideal tools for the multiplication of your funds. It not only helps in fund accumulation but also provides security coverage. Selecting the right fund with optimum returns and benefits, becomes a challenge for every investor, especially for the newer ones. However, with this guide, it will shed some light in this context.
Investment for the Long Term-15-20 years
The investors belonging to the 30% tax slab, ideal investment options will significantly reduce the tax implications. It is better to maintain a diversified portfolio, with a combination of both ULIPs and endowment options. ULIPs invest a part of your funds towards debt or equities, with the potential for high returns. On the other hand, the endowment plans offer lower but guaranteed returns. ULIPs deliver the invested fund with a lot of transparency and benefits. Endowment plans offer a guaranteed income source.
Apart from analyzing your risk profile, you must also analyse all the associated factors before choosing any investment option. There are certain options which are considered to be riskier than the others, although there is potential for generating inflation-beating returns. One thing must be kept in mind that high risk and high return go hand in hand. Therefore, while choosing any particular investment option, you should primarily judge your risk appetite.
The investment products are broadly classified into two basic buckets: non-financial assets and financial assets. The non-financial assets are those like real estate, gold, etc. while the financial assets include all sorts of market-linked instruments like mutual funds, stocks and other fixed-income products like bank fixed deposits, Public Provident Fund.
List of Popular Investments for an Investment Tenure of 15-20 Years
Here we present some of the most important long-term investment options that will ensure sufficient enhancement of the overall wealth corpus.
Equity Mutual Funds
As per the revised norms of SEBI, the equity mutual fund schemes primarily invest a minimum of 65% of its assets towards equity-related instruments and equities. You can both actively as well as passively managed equity funds.
The returns from the active equity funds greatly depend on the capacity and efficiency of the fund manager for generating satisfactory returns. Exchange-traded funds and index funds are passively managed, which tracks the underlying index. Market-capitalisations or the sector of investment categorise the equity schemes. Further categorization areas include if they are domestic or international.
| Risk | High |
| Returns | Market-linked |
| CAGR | 12-15% |
| Investment Limit | No limit |
| Tax Implications | LTCG (investment of 12 months and more) of 10% without indexation after INR 1 lakh of capital gain for over 12 months, otherwise STCG of 15% |
| Issued By | Asset Management Companies |
| 80C | NA |
| Liquidity | Anytime |
The most type of investing in equity mutual fund is by investing in the Large Cap Equity Mutual Funds
These types of equity funds chiefly invest in the top 100 companies in the country. These companies maintain some of the largest and the most popular brands of India and have become household names. These companies generate sustainable profits in the long run.
Equity Linked Savings Scheme
More popularly known as ELSS, this sort of scheme is a type of diversified equity scheme that is close-ended, with a lock-in period of three years. These are offered in India by mutual funds.
| Risk | High |
| Returns | Market Linked |
| CAGR | 12-15% |
| Investment Limit | No limit |
| Tax Implications | Redemption proceeds are taxed at 10% without indexation after INR 1 lakh of capital gain |
| Issued By | Asset Management Companies |
| 80C | Yes, up to INR 1.5 lakhs a year |
| Liquidity | Anytime after 3 years |
National Pension Scheme (NPS)
This is a long-term retirement-oriented investment product entirely administered and managed by PFRDA or Pension Fund Regulatory and Development Authority. he minimum yearly contribution for a single financial year ranging from April to March in an active Tier I account is currently INR 1000. One of the major advantages of this scheme is that it escapes the tax implications on the withdrawal amount of the pension which remains tax-free. Up to 60% of the total maturity corpus is eligible for withdrawal as a lump sum on maturity, while the remaining balance is used for funding the post-retirement pension. This annuity is entirely taxable on the year of receiving and is treated as income from other sources. Any Indian citizen is eligible to open an individual NPS account for availing tax benefits on investments for ensuring post-retirement fixed income.
There are two types of NPS accounts that can be operated. These are termed as Tier I and Tier II accounts. The contributions against the Tier I account are eligible for an additional tax redemption of up to INR 50,000 under Section 80CCD(1B), other than INR 1,50,000 under Section 80C. Premature withdrawals are restricted and follow strict terms and conditions.
The Tier II accounts can be operated by those subscribers who already possess an active Tier I account. Here, he/she can freely remove the entire accrued corpus at any point in time. Under any circumstances, if the subscriber fails to contribute even the primary contribution towards a Tier II account, it will get deactivated automatically. There are no tax benefits under this scheme.
| Risk | Moderate. Currently, there is a cap of 50% cap on equity exposure for NPS. |
| Returns | Market linked |
| CAGR | Market linked. About 8-10% depending on the selection of fund and market performance |
| Investment Limit | Minimum of INR 1000 and a maximum of INR 12000 per annum |
| Tax Implications | Tier I is a non-withdrawable account. Tier II is withdrawable without any tax benefit. 60% can be withdrawn tax-free whereas the annuity must be taken from the remaining 40% of the corpus. Partial withdrawal is allowed after 3 years of specific purpose only. Employees contribution=10% of basic+DA U/S 80CCD(1). Self-employed person can contribute 20% of his gross income u/s 80CCD(1). Employer’s contribution exempted u/s 80CCD(2) Additional tax benefit of INR 50000 p.a. U/S 80CCD(18), over and above INR 1.5 lakh of 80C for individuals contributing towards NPS. |
| Issued By | Pension Fund Regulatory and Development Authority through various POPs |
| 80C | Yes, under Section 80CCC up to INR 50,000 invested in Tier II accounts of NPS under Section 80CCD(1b), total INR 2 lakhs. |
| Liquidity | Tier I is a non-withdrawable account. Tier-II account is withdrawable without any tax benefit. 60% can be withdrawn tax-free while the annuity needs to be taken from the remaining 40% of the corpus. Partial withdrawal is permissible after 3 years for a specific purpose only. |
Public Provident Fund (PPF)
This is one of the most popular investment options that are chosen by the general investors. It comes with a long tenure of at least fifteen years. It can be extended for five more years on maturity. Therefore, the result of compounding tax-free interest is immense, especially during the later period. Moreover, the interest earned as well as the capital invested enjoys long-term sovereign guarantee, which makes it a secured source of investment. The rate of interest of PPF is revised by the government every quarter. However, once you choose it, the rate remains fixed throughout the tenure. This scheme is ideal for investors with a low-risk appetite.
The minimum investment amount is INR 500 while the optimum amount is INR 1.5 lakh. This investment can be undertaken either on an instalment basis or as a lump-sum. But, any particular investor is eligible for up to 12 yearly instalments. To maintain the active status of the account, the installation must be withdrawn every year. Moreover, the PPF account also offers the facility of loan against investment.
The total investment is eligible for claiming the tax redemption benefits under Section 80C of the ITA. However, the maximum investment in one particular year must not exceed the limit of INR 1.5 lakh. The funds invested under this scheme cannot be liquidated before maturity.
| Risk | Sovereign |
| Returns | Guaranteed but varies year to year |
| CAGR | Varies yearly. Currently, it is 7.1% |
| Investment Limit | INR 500 to INR 1.5 lakh p.a. |
| Tax Implications | Maturity is tax-free |
| Issued By | Banks like SBI, Post Office |
| 80C | Yes, up to INR 1.5 lakh every year |
| Liquidity | A loan can be taken up to a maximum of 25% of the financial amount from the 3rd financial year onwards |
Life Insurance Endowment or Money Back Plans
Both money back plan and endowment policies offer dual benefits of live coverage along with savings options. Moreover, both these schemes are eligible for tax deductions. Under endowment policies, the maturity benefits become available after a specified policy term. Under a participating plan, the fund is made accessible only on maturity or during death. On top of that, you will also receive additional yearly bonuses. But an endowment plan is a non-participating fund, the maturity benefits are specified as they offer guaranteed benefits.
Under money back schemes, the payouts are considered as a percentage of the sum assured or the paid premiums. But the return rates are comparatively lower than the endowment policies.
| Risk | Low |
| Returns | Guaranteed |
| CAGR | 4-6% |
| Investment Limit | Depends on the directions of the company |
| Tax Implications | Maturity is tax-free under Section 10(10)D for plans for more than 5 years and Premium: Sum Assured ratio is at least 1:10 |
| Issued By | Insurance companies |
| 80C | The premium paid is tax-free under section 80C of the Income Tax Act upto INR 1.5 lakhs a year |
| Liquidity | A loan can be taken after 3 years |
Unit Linked Insurance Plans
ULIP is a special product that is offered by the insurance companies, which, unlike pure insurance plans, offer the investors the benefits of both investment and insurance under a single scheme. The insurer accumulates funds from the policyholders and then invests them in the same funds that are selected by them. Once this investment is done, the entire corpus is then divided into ‘units’ with a certain face value. After each investor is allocated a certain number of units worth their investment amount.
| Risk | Depends on the fund. Equity oriented funds have a higher risk than debt-oriented funds. |
| Returns | Market linked |
| CAGR | Usually ranges between 6-15% |
| Investment Limit | Usually not limit, but depends on the underwriter’s approval |
| Tax Implications | Maturity is tax-free under Section 10(10)D for plans for more than 5 years and Premium: Sum Assured ratio is at least 1:10 |
| Issued By | Insurance companies |
| 80C | The premium paid is tax-free under section 80C of the Income Tax Act upto INR 1.5 lakhs a year |
| Liquidity | Redemption and partial withdrawal is allowed after the initial lock-in period of 5 years. |
Tax Benefits When Investing in Such Scheme for 15-20 Years
Except equity mutual funds, other options such as life insurance plans, ELSS, NPS, PPF schemes benefit the investor in tax redemption under section 80C.
Investment for 15-20 Years
This is a comprehensive guide of the plausible investment options that are relevant for investment schemes of 15 to 20 years. Some of these options are market-linked, while some are fixed income-generating options. Fixed income investments ensure the preservation of the accumulated wealth for meeting the desired goal(s). For long-term targets, it is important to maintain a diversified portfolio to ensure optimum benefits and returns.