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Important Things To Remember While Investing in A Savings Plan

A Savings Investment plan is important in order to achieve your short-term and long-term goals. Click here to learn the factors involved while selecting a money-saving plan!

  • 9,133 Views | Updated on: Dec 15, 2023

In today’s world, saving money is not enough to secure your financial future. It is essential to invest your savings wisely to make them grow over time. However, choosing the right investment plan can be a daunting task with a plethora of options available.

Key takeaways

  • Set long-term and short-term financial goals. It will bring in a lot of clarity and help you choose the right investment plan.
  • When you choose an investment product, you need to invest very carefully and maintain a balance between the risk and reward associated with the same.
  • Diversification is a crucial strategy for reducing investment risk.
  • Consider your investment time horizon, which refers to the length of time you can commit to leaving your money invested.

To make an informed decision and maximize your returns, consider these eight crucial factors when selecting a savings investment plan.

Savings Investment Plan

A savings investment plan is a strategy that enables individuals to save a portion of their income regularly and invest it in various financial instruments, such as mutual funds, stocks, bonds, or Exchange-Traded Funds (ETFs). Unlike traditional savings accounts that provide minimal interest rates, a SIP harnesses the potential of the financial markets to generate higher returns on your invested capital.

Understanding the Flexibility of the Plan

A savings investment plan is a financial product that allows individuals to save and invest their money for the long term, providing them with a source of income and capital appreciation. What sets this plan apart from others is its unique flexibility, making it an attractive choice for many investors.

Flexibility in Contribution Amounts

One of the key advantages of a savings investment plan is the flexibility it offers in terms of contribution amounts. Unlike other investment vehicles that require a fixed monthly or annual contribution, this plan allows investors to choose the amount they wish to invest. Whether you have a large sum of money to invest or can only afford to contribute a small amount regularly, a savings investment plan can accommodate your financial situation. This flexibility ensures that individuals from all income brackets can participate and benefit from the plan.

Diverse Investment Options

Another aspect of flexibility offered by savings investment plans is the availability of diverse investment options. These plans typically provide a range of investment funds or portfolios to choose from, catering to different risk appetites and investment goals. Whether you prefer a conservative approach with stable returns or are willing to take on higher risks for potentially higher rewards, there is likely to be an investment option that aligns with your preferences. This diversity allows investors to tailor their savings investment plan to their specific needs, making it a versatile choice.

Liquidity and Withdrawal Options

One significant concern individuals may have when considering long-term investment plans is the lack of liquidity. However, savings investment plans address this concern by offering liquidity and withdrawal options. While these plans are designed for long-term savings and investment, they also provide flexibility in case of emergencies or unforeseen financial needs. Depending on the terms and conditions of the specific plan, investors may have the option to make partial withdrawals or even terminate the plan early, albeit with certain penalties or limitations. This flexibility ensures that your funds are not locked away indefinitely, providing peace of mind.

To achieve your short-term and long-term goals, it is important to invest in a savings plan. You can choose from various schemes and instruments available in India. However, it is important to carry out thorough market research and understand the features of the plan before making a decision.

Factors to Help You Choose the Right Savings Plan for Your Financial Needs

Savings plans help you earn good returns over the long term. These plans can help you prepare for achieving life goals, save for that dream car or a destination wedding. Well, the last one might be too much, but why not? The right investments can help you achieve financial goals at the right time.

Now, if you are tempted to get one right away, hold your horses. You can keep the following factors in mind before choosing a savings investment plan that is best for you.

Your Goals

Set long-term and short-term financial goals. It will bring in a lot of clarity and help you choose the right investment plan. Your goals will help you decide on the plan you need to buy. The process might sound tedious now, but it will pay later.

You can keep looking for a plan that helps you achieve your short and long-term goals. Prioritize these goals, and you will know what you need to do next. But wait, now that you have the goals in place, let us go to the next step.

The Balance Between Risk and Reward

Now that you know that you want to buy a house or that dream car, let us help you go ahead and judge the risk and rewards.

When you choose an investment product, you need to invest very carefully and maintain a balance between the risk and reward associated with the same. Consider your risk appetite when you choose a plan. Risk appetite determines your ability to invest in taking financial risks. For example, if you are willing to invest more for more returns without hurting your financial stability, your risk appetite is high. If you have many financial commitments and cannot afford to lose money, you have a low-risk appetite.

Diversification

Diversification is a crucial strategy for reducing investment risk. By spreading your investments across different asset classes, industries, and geographical locations, you can minimize the impact of any single investment’s performance on your overall portfolio. Look for savings investment plans that offer diversification options, such as mutual funds or Exchange-Traded Funds (ETFs), which provide exposure to a wide range of securities.

Investment Time Horizon

Consider your investment time horizon, which refers to the length of time you can commit to leaving your money invested. Short-term goals may require more stable and easily accessible investment options, while long-term goals allow for higher-risk investments that can potentially yield greater returns. Longer time horizons provide more opportunity for market fluctuations to even out, making it easier to ride out short-term volatility.

Liquidity

Your savings plan should have adequate liquidity to satisfy your needs. You need to ensure that the plan provides funds to you in times of emergency. Consider your liquidity requirement before you choose a plan. For example, if you cannot withdraw funds in the case of an emergency, the aim of investing is lost.

If you are looking for short-term goals, liquidity should be your first factor to consider.

Understand the Tax Deduction Offered

When you make a savings investment, consider the tax benefit offered by the investment product. Various investment products, such as life insurance and health insurance, offer a tax benefit. Investing in such products will not only reduce your tax amount but will also protect you in case of a medical emergency.

Look Out for the Diversity Aspect

Your best saving plan should not be restricted to one investment product. You will have to diversify your investment to reduce the risk associated with the same. Consider all the investment options which serve your purpose and diversify the investment. One of the major reasons to diversify your investments is that they help in coping with market crashes and recession-type situations.

Ease of Accessibility

Accessibility is a crucial factor when considering any investment plan, and savings investment plans excel in this aspect as well. These plans are designed to be easily accessible to individuals, regardless of their financial knowledge or expertise. The administrative processes and documentation requirements are typically straightforward, enabling individuals to open an account and start investing without any unnecessary complications. Moreover, the minimum investment amounts are often reasonable, making it feasible for individuals with various income levels to participate.

Performance of the Plan

It is important to review your portfolio at least once a year in order to make necessary changes as and when required. Once you make an investment, you should not simply forget about the same. Review the portfolio regularly and then take necessary action to maximize your profits.

Check the Charges

You should keep inflation in mind while investing in a savings plan. If the inflation is lower than the rates of return offered by the investment plan you choose, invest in it now. Real wealth would be produced by the investment. There won’t be any genuine wealth growth or capital accumulation if the inflation rate exceeds the rate of return.

Tax Efficiency

Tax efficiency is an essential aspect of any investment plan, and savings investment plans often offer attractive tax benefits. Depending on the jurisdiction and specific plan, contributions to these plans may be tax-deductible or eligible for tax credits. Additionally, the growth and income generated within the plan are typically tax-deferred, meaning investors do not have to pay taxes on them until they withdraw the funds. This tax efficiency can significantly enhance the returns on your investment and make savings investment plans even more appealing.

Terms and Conditions

This is a very important thing to remember when you buy a plan. Ask all the necessary questions before choosing a plan. Investment plans are complex as there are various terms and conditions attached to them. Hence, buy a plan only when you are well aware of what it is offering. Clear your doubts about the plan before you put your money into it.

Wrapping Up

Making an investment requires market research and an understanding of different plans. To make the right investment decision, you need to consider your financial goals and then look at the available alternatives for you. Making the right investment will help your wealth grow over a period of time.

FAQs

1

What are investment funds offered under the Investment Plan?

Well-known investing alternatives include mutual funds, the Public Provident Fund, corporate and government bonds, exchange-traded funds, and the National Pension Scheme. The returns offered, level of risk, tenure, taxation, and whether the returns are guaranteed or market-linked are all different for each of them.

2

What is the safest investment with the highest return?

  • High-yield savings accounts
  • Short-term certificates of deposit
  • Money market funds
  • Corporate bonds
  • Dividend-paying stocks




3

What is Risk Appetite?

Risk appetite is the amount of risk that a company is willing to take on in order to achieve its goals before taking steps to lessen the risk. It represents a balance between the threats that change invariably brings and the possible rewards of innovation.


4

When should you consider liquidity while choosing a savings plan?

When investing, liquidity is crucial to access the capital you accumulate. You may become cash-poor if all of your assets are invested in long-term or highly illiquid securities. Your ability to invest money into a new investment opportunity may be considerably reduced as a result.


5

What to look for when choosing a savings account?

  • Interest rate
  • Fees and charges
  • Accessing your money
  • Opening deposit
  • Government guarantee

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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