Best Long Term Funds

Read on to know more about the best long term funds in detail: 

Long Term Funds – A Brief Overview 

Long term funds are typically open-ended investment funds that mainly invest in corporate and government bonds with a longer outstanding maturity time period. They have good potential and the ability to offer high returns. The returns are generated from the capital appreciation and interest income from the securities in the portfolio. Though, these types of funds are very volatile in nature and come with a high amount of risks. 

The fund managers of a long term funds choose bonds with a tenure of above 7 years. This could provide a higher return when compared with medium-term funds in a decreasing rate of interest situation. These long term funds usually provide excellent dividends to an investor. If you are ready to take a high risk to receive better returns, then you can select such a fund. 

Investment in Long Term Funds 

Long term funds invest in a fusion of government and corporate bonds of a longer tenure. It could also capitalize on money market instruments. As discussed, long term funds are more volatile in comparison to short-tenure debt funds, which mainly focus on the coupon income. The interest income is increased by capital profits to provide a better return when compared to debt funds. When you opt for such long term funds, you will be required to thoroughly and actively review the funds’ performance from time to time. Let’s discuss about such funds in detail: 

1. Who Should Invest in Long Term Funds? 

   • You should think through investing in long term funds if you are prepared to stand short-term volatility and also stay invested for a long time. It can offer you a good return in comparison to most of the debt funds because it capitalizes on bonds of a longer term. 

   • You can also invest in long term funds if you are ready to face the risk of unstable or fluctuating rates of interest for a good return. 

   • You may also consider investing in these funds for a period of 3 to 5 years as it may support you fulfill medium-tenure financial objectives

2. Who issues Long Duration funds? 

   ACMs i.e., Asset Management companies or fund houses issue investment funds. All the ACMs are required to be approved by the (SEBI) Securities and Exchange Board of India. 

3. When Should I invest in Long Term Funds? 

   This is quite circumstantial. If you want to invest directly in stocks, then in such cases you choose equity funds. Whereas in case, if you wish to lower your tax outlay of money compared to a recurring or fixed deposit with good returns, then you can select debt funds. 

   Before investing in any funds, you should be clear about your requirements so that you can make the right decision regarding investment funds. 

Taxability of Best Long Term Funds 

Long term funds are taxed in the same manner as debt funds or capitals. The short-tenure capital profits after an allotment time of less than 36 months are supplemented with your taxable income. This is taxed on the basis of your income tax slab. And, the long-term capital gains after the allotment time of 36 months or above, are taxed at the rate of 20 percent along with the indexation benefit. This benefit helps in inflating the buying charge of the long term bonds to modify for inflation. You might be required to pay taxes based on the slab of your income tax. And you may receive a tax-efficient income in comparison to bank FDs if you fall in the high-income tax slabs. 

Points to Consider Before Investing in Long Term Funds 

• Investment goals: You may capitalize on long term funds only if you remain invested for a long time. It might help you fulfill medium-tenure financial objectives. 

• Risk profile: The long term funds possess more risk than debt funds. These funds mainly invest in bonds of a longer term, which makes them susceptible to a rate of interest fluctuations. 

• Time Period: You should always think of investing in long term funds with a time period of 3 to 5 years 

• Better Returns: Long term funds also provide a good return amount as compared to medium-term funds. It capitalizes on bonds of a long outstanding maturity and possibly will produce more returns during reduced interest rate events. 

• Expense ratio: Always consider checking out the expense ratio of the long term funds. More expense ratios may consume into the fund return. 

Benefits of Investing in Best Long Term Funds 

Following are the advantages of investing in the best long term funds: 

• You may get a good return as compared to various debt funds 

• It provides a higher return in comparison to Bank FDs. It also offers a higher tax-effective return for financiers in the higher slabs of income tax 

• Investing in these types of funds is a smart option to fulfill medium duration goals 

• You can also consider varying the portfolio with long term funds. It provides stability and security against the unpredictability of the stock industry. 

At Last!

A long term investment fund makes a lot of significance in your portfolio. It is important for long-duration wealth creation. When you plan for your life objectives such as retirement child’s education, marriage, buying a house, etc., long term plans help in fulfilling all these goals.