Simran is a 40-year-old woman and a secretary of the owner of one of the biggest firms present in the country. Due to huge debts on his name and a few of the tenders lost by the business, the owner became bankrupt and had to close down. Once a successful owner, Raj was now down in the dumps. Simran on the other hand had accumulated a considerably large wealth over the years in her retirement corpus.
How is it that Simran, the secretary has huge wealth, so much so that she can provide it to her boss to resume the business?
The answer is long-term investments.
Ever since she started working, Simran made it a habit to put a certain sum every year in a long-term investment. This enabled her to accumulate a large fund over some time.
Long-term investments are the type of investment where you invest and hold for a period that is more than 1 year and typically 5-10 years.
How Did Simran get a Good Return?
As discussed Simran amassed a good wealth due to investment in the longer term. She got the advantage of two of the most defining features of long-term investments. These are:
- Untouched Investment Growth- Power of Compounding
1. Untouched Investment Growth
Once you start to invest in a long-term scheme, then it is better to keep your investment intact and not change anything. This allows more time and space for your investment value to grow better.
Simran kept on investing a part of the salary every month and left the investment untouched. She did not withdraw from the funds she was investing neither did she change anything which helped her corpus reach a good value.
However, you should note that not touching your investment does not mean you don’t keep a tab of it.
2. Power of Compounding
There is a popular saying, The best time to invest was yesterday, the next best time is today. This sums up the gist of the power of compounding returns. The earlier you start investing the more you can benefit from the compounding returns principle. Simran started investing right from the time she started working, this helped her generate good wealth.
Compounding is the benefit you get if you reinvest the interest earned back into your investment. Here is how compounding works.
For example, you have invested Rs 1 lakh in an investment that earns interest of 10%. After 1 year the value of your investment will be Rs 1.1 lakhs. If you don’t take out interest and keep it invested then you will earn interest on 1.1 lakhs. Thus, interest will be 11000. Staying invested for a longer time will give you massive returns.
Why should you Invest Long-term in Savings Plan?
Like Simran in the above case, you as an investor can also reap many benefits if you decide to invest for a longer-term. Here are a few reasons why you should consider a long-term investment
1. Investing In Higher-Risk Assets
The market is full of volatility. Volatility is often associated with market risk. The more volatility, the more will be the risk in an investment. Generally, the risk goes down in a long-term investment.
So, if you have time and can invest for a longer period, you can consider investing in high-risk assets such as equity funds. Since high risk correlates with a higher return, equities also possess the ability to fetch you greater returns.
2. Maximizes the Chances of Growth
As told earlier, the risk is higher in the short term. If you jump in and out of your investments, you are more likely to lose money. But if you decide to stick with your investment, it has a very good chance of rising. Especially if you are associated with strong companies.
Also, long-term investments offer you chances to rectify your mistakes and minimize your losses. For example, you decide to buy a stock as you see prices rising, but soon it falls to the same level.
If you are invested for the long term you can add more at a lower price and earn gains when its market performance increases. Long-term investment also helps you get an idea of how a stock will react in the future.
3. Most Efficient Way of Managing the Risks
Time is a risk-mitigating factor. Long-term investment generally has a time frame of a minimum of 7-10 years. This provides your investment with ample time to grow.
So, the more time you are invested in more is the chances of the risk getting lowered.
The Sensex returns show that the risk keeps on decreasing as the time for investment increases.
For a 1-year timeframe, the risk is 35%. It comes down to just 5 per cent when the investment is held for 10 years.
Long-Term Savings & Investment Plans from Canara HSBC Oriental Bank of Commerce Life Insurance
Now you know how long-term investments can benefit you, look at some long-term saving plans offered by Canara HSBC Oriental Bank of Commerce Life Insurance:
1. Invest 4G
Invest 4G is a unit-linked insurance plan. It is a plan that provides you life coverage along with an opportunity to invest in the market to get returns.
Invest 4G is a great long-term investment option as the funds have to be invested for a minimum of 5 years as a lock-in period.
Other features the plan offers are:
a. Return of mortality charges: The charges you pay as mortality charges are returned to you at maturity.b. A partial withdrawal facility allows you to withdraw part of your money when in need. This carries no charge after 5 years of the policy.c. The safety switch option transfers your money to a safer fund as your policy comes near the maturity date. This makes sure you don’t lose your gains during maturity.d. Auto fund rebalancing helps you to maintain a specific ratio between funds throughout the term of the policy.e. Wealth Boosters and Loyalty additions to reward you for staying invested.
2. Guaranteed Savings Plan
It is a savings plan that allows you to save and create a corpus, while also ensuring your family’s safety by providing you life cover.
This plan provides you protection as it ensures your safety of returns. This plan provides you with guaranteed returns even on maturity.
It provides features such as an option to pay for a limited time and get covered for a longer duration. The premium payment option ensures that your family doesn’t have to pay the remaining premiums if you die during the term of the policy.
3. Guaranteed Income4Life Plan
Guaranteed Income4Life Plan is a saving cum protection plan. This not only provides death benefits but also ensures a regular income stream. This caters to both your long-term as well as short-term needs. A long-term plan offers you income for 20 years.
The lifelong option of this plan provides you with regular income up to the age of 99 years.
This provides you premium protection and wealth boosters as well.
In order to build a significant corpus to take care of the essential expenses of your loved ones even when you are not around – you must buy the best savings plan. Such a plan helps you build your financial goals and achieve them without much hassle. Also, your financial goals are aligned to all the milestones of your life that you want to reach.