What is an Investment Plan?
Before going into detail about the various types of investment plans, let’s first establish how investments differ from savings plans. Each type of plan represents different approaches to building wealth that accomplish distinct goals within an overall financial strategy. For the risk averse, savings plans enable people to safely accumulate money over time. It is typically money set aside for an emergency or future purchase.
In India, the government offers the Public Provident Fund (PPF) as a retirement savings scheme. It is one of the most popular and safest investments to ensure a secure retirement. It is also one of the only schemes that offers a tax-free maturity benefit and you can borrow from the accumulated funds within the first five years of the account. Afterward, partial withdrawals are allowed. There is also the National Pension Scheme (NPS), which is a long-term savings plan. You can claim deductions under Section 80C up to Rs. 1.5 lakhs for your own contribution and up to Rs 50,000 for your employer’s contribution to your account. At maturity, you can withdraw 60% of the fund tax-free, while the rest must be invested in a pension plan. You can start at any age after 18 up to 65 years of age and after 60, you can withdraw the money entirely or make smaller withdrawals until the age of 70.
Additionally, mutual funds are collective investments in which pools of money are invested in the stocks and bonds of various public companies and managed by a fund manager. Tax-saving fixed deposits also offer another type of savings account that delivers assured returns after a designated period with minimal risk.
Alternatively, investment plans are financial instruments that enable you to create wealth for future needs. The most common of these are traditional stocks and bonds. There are also various investment plans that enable you to regularly contribute to different money-market products. These investment plans provide the much-desirable advantage of creating wealth through disciplined payments over time.
Unit Linked Insurance Plans (ULIPs), on the other hand, combine life insurance cover with an investment option. ULIPs offer unique benefits such as tax rebates on premiums and benefits received during the policy term under Section 80C and Section 10(10D) of the Income Tax Act, 1961. Policyholders can withdraw a portion of the invested money, after the lock-in period. Additionally, policyholders have the option to create their own mix or invest in individual equity, debt or balanced funds. Solutions such as PNB MetLife Endowment Savings Plan Plus empowers you to accumulate your savings for your financial needs at every stage of life in addition to the health and life insurance benefit.
How to determine which types of investments are best
While there’s no one-size-fits-all approach to meeting your financial goals, it is important to balance your risk tolerance with your expectations for returns and liquidity needs throughout life. For example, investing for retirement requires a different plan than what is required for wealth accumulation, preparing for your child’s education, or buying a home. Once you have established your motive or investing, choosing the product becomes rather easy. Consider the following when planning your investments:
- Choose investments carefully after conducting research
- Don’t fall for “quick-buck” schemes that promise high returns in a short time
- Review your stock and mutual fund investments periodically
- Consider the tax implications on returns you earn on your investments
- Keep things simple and avoid complicated investments that you do not understand
- How much you are earning and how many financial dependents you have
A young investor will have vastly different investment goals than an older individual. Therefore, investments should be chosen carefully, with the guidance of a financial advisor to get the most out of it.
The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ health advisor before making any decision.
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