For the middle class in India, the best savings plans can consider PPF for safe long-term returns and tax benefits, Fixed Deposits for predictable income, and Mutual Funds for potentially higher growth (but with market risk). Instead of looking for the best policy for middle-class families, a financial advisor would suggest you mix these options for a plan that fits your goals and risk tolerance.
Key Takeaways
- Saving plans provide a combination of targeted savings for specific goals and security for families during unpredictable circumstances.
- A monthly savings plan offers guaranteed monthly income after a specific premium payment period, providing ongoing financial support and life insurance coverage.
- Money-back plans provide returns periodically during the policy’s duration, helping meet financial commitments with the remaining sum assured at the end.
- Tied to the capital market, ULIPs offer potentially higher returns, especially when held long-term but subject to market fluctuations.
- National Pension Scheme (NPS) is a market-linked retirement plan with voluntary contributions and annuity options post-retirement.
Best Savings Plan to Choose From
The Indian market offers a variety of options to fit your needs, from low-risk government-backed schemes like PPF with guaranteed returns to potentially high-growth investments like mutual funds with associated market risks. Let us take a look at the choices available:
Public Provident Fund (PPF)
Among all of the long-term investment alternatives offered in India, the Public Provident Fund (PPF) is regarded as one of the most secure. Compound interest can be earned on the accumulated funds by current rules, and the interest is tax-free.
With a minimum deposit of ₹1,000, a PPF account may be opened at a bank or post office. For a predetermined period of 15 years, the acquisition is locked. However, by the sixth year, you may take some of the invested funds out. You can extend the deadline by an additional five years after the 15 years.
Senior Citizen Savings Scheme
The Older Citizens’ Savings Scheme (SCSS), which provides regular income to senior citizens, is one of India’s risk-free tax-saving investing options. Banks and post offices offer investment opportunities in SCSS throughout the country of India. The maximum investment into this program is ₹15 lakh. The initial term is five years, although it has a three-year extension option.
Post Office Monthly Income Scheme (MIS)
A program governed by the India Post Office is called Post Office MIS. It is supported by the government and enables consumers to save each month. With a minimum opening deposit of ₹1500 and a 5-year maturity period, any Indian citizen can create a Post Office MIS account either individually or jointly. This monthly saving scheme offers no tax advantages for the amount invested or interest income.
Mutual Funds
Asset management firms overseas equity mutual funds, where fund managers buy shares in companies in the hopes of increasing their value. While carrying a higher level of risk, equity mutual funds have historically outperformed gold and fixed-income investments in terms of long-term returns.
Unit-Linked Insurance Plans (ULIP)
A ULIP is yet another popular investing tool offered by insurance providers. It combines the advantages of insurance and investing into a single integrated package. In ULIPs, the investor pays a premium that is split between life insurance coverage and investments in equities, debt, or hybrid funds.
National Pension Scheme (NPS)
A market-linked retirement plan with voluntary contributions is known as the National Pension Scheme or NPS. The NPS is open to all Indian citizens between the ages of 18 and 65. Contrary to popular assumption, following retirement, you are not permitted to withdraw the entire NPS corpus. A PFRDA-registered insurance company must provide a regular pension from at least 40% of the corpus. Throughout your retirement years, this annuity will give you a steady stream of income. However, you are tax-free to redeem up to the final 60% of your retirement fund.
Debt Mutual Fund
Debt mutual funds are managed by asset-managed businesses that pool investment contributions from different participants and invest in fixed-income securities like treasury bills, corporate bonds, commercial paper, and other money market instruments. By receiving interest payments from the underlying securities and profiting from changes in interest rates, investing in debt funds hopes to provide capital appreciation.
Understanding Savings Plans
A savings policy or savings plan serves as a financial tool aimed at achieving both wealth accumulation and life insurance objectives. With a savings insurance plan, purchasers benefit from the combined advantages of targeted savings for specific goals and providing security for their families during unpredictable circumstances.
Types of Savings Plan
The fundamental principle behind a savings policy is straightforward. Initially, you pay a designated premium to the insurer offering the savings investment plan. This money is then invested in non-market linked instruments, accruing returns at a predetermined interest rate.
Over time, the initial investment grows and multiplies. Once the designated period elapses, you begin receiving the accumulated income at regular intervals throughout the income payout period. This can be in the form of a lump sum at the end of the tenure, monthly payouts, or a combination of both.
Monthly Savings Plan
A monthly savings plan is among the best investment plans for middle-class families in India. With this option, you receive guaranteed income every month after a specific period of premium payments. This monthly income can be utilized for your ongoing expenses while also providing life insurance coverage to support your family in case of your demise.
Guaranteed Return Savings Plan
Popular among financial planning for middle-class families, in a guaranteed return savings plan, you receive assured returns during significant life milestones, along with a life insurance cover for unforeseen circumstances. These plans also offer liquidity, allowing you to encash your funds periodically, which appeals to many investors.
Money-back Savings Plan
Money-back savings plans provide returns periodically during the policy’s duration rather than solely at maturity. This helps meet financial commitments every 2-5 years, with the remaining sum assured provided at the end of the plan.
Endowment Savings Plan
Similar to other savings plans, an endowment savings plan pays a maturity benefit at the end of the policy term and includes a life insurance cover. Endowment plans can be profit or non-profit, with profit policies offering company-earned profits along with returns.
Unit-Linked Savings Investment Plan
Unit-linked savings investment plans are a subcategory of savings plans. Unlike non-linked plans, unit-linked insurance plans are tied to the capital market, making returns subject to market fluctuations. However, these plans can yield substantial returns, especially when held long-term, allowing investors to balance risks effectively.
Wrapping Up
The majority of middle-class households in Indian society emphasize the importance of accessible and effective financial planning tools. Savings plans serve as invaluable instruments in achieving both wealth accumulation and life insurance objectives, offering security and stability to families amidst uncertainty. With diverse options available, from government-backed schemes like the PPF to market-linked investments such as Mutual Funds ULIPs, individuals can tailor their savings strategies to meet their specific needs and aspirations. By understanding these savings plans and considering their risk tolerance and financial goals, individuals can embark on a journey towards a secure and prosperous future for themselves and their loved ones.
FAQs
1
Can I access my savings in case of emergencies or unforeseen circumstances?
Yes, many savings plans offer options for accessing funds during emergencies, but the availability and terms vary depending on the specific plan. Risks in savings plans range from market fluctuations in investment-linked plans to potential penalties for early withdrawals in certain schemes.
2
What are the risks involved with different types of savings plans?
Risks in savings plans range from market fluctuations in investment-linked plans to potential penalties for early withdrawals in certain schemes.
3
How do I open and manage a savings plan account?
You can open and manage a savings plan account by contacting the respective financial institution or organization offering the plan and following their account opening procedures.
4
Are there any penalties or fees associated with withdrawing funds from a savings plan prematurely?
Yes, withdrawing funds prematurely from a savings plan may incur penalties or fees, so it is important to understand the terms and conditions of your specific plan beforehand.
