Income Plan
You have a variety of options for investing your money. One method to do this is to broaden your asset portfolio. Investments in precious metals such as gold and silver, stock in firms that may or may not pay dividends to their shareholders, and real estate, as land is considered an asset in India, are examples. Another option is to use set saving plans specially created to assist you as an investor in obtaining your target return value within the confines of your established risk appetite and spending capacity.
a) Long Term : Long-term investment plans allow you to put your money into anything for a longer length of time. Long-term investment plans have more risk elements than short-term investment plans, but they also have bigger potential returns. However, by performing a thorough study prior to investing, these risks can be reduced. The following are the primary long-term plans:
Unit-Linked Insurance Plans (ULIPs)
A ULIP is a hybrid plan that combines the advantages of both investment and insurance. This is an excellent choice for a long-term investor seeking a stable income stream.
Equity Linked Savings Scheme (ELSS)
ELSS is considered the greatest Equity Mutual Funds long-term investment plan because these assets are qualified for tax exemption under Section 80C if they are under 1.5 lakhs. Thus, it is the only mutual fund that is eligible for tax advantages.
National Pension Scheme (NPS)
A government-backed system allows you to invest in assets such as debt and equity, with the profits from these investments determining your final pension amount.
Public Provident Fund (PPF)
PPF is a post office savings scheme, and the returns you receive are tax-free. It's a good alternative for investors because it provides tax benefits and a stable rate of return while posing a little risk.
b) Short Term : These are extremely liquid investment alternatives. You have the option of investing your funds for a shorter period of time. This can take anywhere from three months to three years. The most popular reasons for choosing short-term saving and investment strategies are financial security and wealth building for short-term financial goals.
The following are some of the best short-term investment schemes for saving money:
Debt Mutual Funds
Investments in debt and money market securities are the safest type of mutual and debt funds. The risk is low, and returns can reach 10%, making it an excellent choice for a short-term investment.
Treasury Securities
A treasury bill is a government-backed instrument with excellent liquidity. The risk is low, and the rewards are reasonable.
National Savings Certificate (NSC)
The National Savings Certificate (NSC) is a government-backed, tax-saving, short-term savings plan that may be obtained at any post office. An NSC is eligible for tax benefits under Section 80C of the Internal Revenue Code.
Large Cap Mutual Funds
These are low-risk securities that invest in the market capitalization of your money. Your money is put into large-cap corporations for a three- to five-year period.
Recurring Deposits
In contrast to fixed deposits, where a lump sum is invested, investors in a recurring deposit can make payments in the form of monthly instalments.
Post-Office Time Deposits
Indian Post's Post-Office Time Deposits (POTD) is an investment plan. It is a popular short-term scheme with tenure options of one year, two years, three years, & five years in rural and distant places. In many aspects, it resembles a bank fixed deposit.
Fixed Deposits in Banks
Fixed deposits are a type of investment in which you deposit a specified amount with a bank for a certain period and get a specified percentage of that amount as interest in return.
c) Deferred : A deferred compensation plan defers a portion of an employee's income to a future date, typically retirement. In this type of arrangement, the lump-sum owed to an employee is paid out on that date. Pensions, retirement programmes, and employee stock options are all examples of delayed compensation systems. Here are the two types of deferred compensation plans which you should know:
Qualified Deferred Compensation Plans
The Employee Retirement Income Security Act is met by a qualified deferred compensation plan (ERISA). They must have contribution limitations, be non-discriminatory, open to any company employee, and helpful to everyone. They're also safer because they're kept in a trust account.
Non-Qualified Deferred Compensation Plans
A non-qualified compensation plan is a contractual agreement between an employer and an employee. The corporation withholds a portion of the employee's pay, invests it, and then distributes it to the employee at a later date. Non-qualified plans have no contribution restrictions and might be limited to specific employees, such as senior executives.
Endowment Plan
An endowment plan is a regular money-saving plan that helps create a corpus and provides assured maturity rewards and bonuses. The endowment policy is a type of insurance plan that combines life insurance with the opportunity to build wealth via systematic savings. It is one of the best investment and money-saving choices available to those looking for insurance, investment, and savings plans.
Full-Endowments
These plans, often known as with-profit endowment plans, offer you a sum assured at the end of the policy period. However, in the event of a misfortune within this time, the insurer will pay this sum to your nominee.
Low-cost Endowment
This plan has a lower premium and allows you to save for future payments due after a set length of time. The main goal is to set up a fund within a certain time limit. This form of endowment can thus be used to fund loan repayments or specific life goals.
Non-profit endowment
This policy pays you a lump sum amount at maturity or to your nominee in the event of an unfortunate event, whichever comes first. Because the insurer does not offer bonuses with such plans, the payout amount remains static.
Important Factors to Consider When Choosing Different Types of Savings Plans
If you want to invest in life insurance savings plans, here are three questions (and answers) to help decide.
1. Why Should I Use a Life Insurance Savings Plan?
It is preferable to have a financial backup in place, than to have none at all. The main goal of a life insurance savings plan is to provide a structured and disciplined method of putting money away. If you are a natural saver, putting money in the bank as a form of investment would work for you. The funds from saving plans can be used during emergencies, or it can come in handy if you want to fulfil any future obligations such as down payment on house or cars, or children’s education.
A Life insurance savings plan offers extra incentives for those who plan to save for a long time (10 years or more).
2. How Do I Decide the Most Suitable Types of Saving Plans?
Understand these factors to help you assess the most suitable type of saving plans.
- Your Objective
- Risk Profile
- Liquidity
- Understanding the terms and conditions
- Review and diversify your profile
3. What is Your Reason for Starting a Particular Type of Life Insurance Savings Plan?
Sometimes, people also opt for a life insurance savings plan solely to use it as a disciplined savings account. Many people prefer to invest in savings plan because they believe it is the safest way to save money. It provides a clear future obligation; fulfil short and long term goals, provides financial backup and much more.
The Way Forward
We can’t control external factors such as inflation, or uncertain eventualities, but adequate savings will reassure you and trust that you will not lose money if you remain diligent all through. There is no one-size-fits-all solution when it comes to investments. However, it's essential to find out which investment is the best for you and your uniquely distinctive needs. So, choose wisely!
