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What is a savings plan?

A savings plan is a structured approach to regularly setting some money aside to achieve financial goals, such as building an emergency fund, saving for a major purchase, or preparing for retirement.

  • 6,792 Views | Updated on: Apr 10, 2024

There are a number of financial policies that can be opted for to ensure a secure and stable financial future. However, there are people who have a low-risk appetite and prefer opting for the safest option available in the market when it comes to investing. Investing in a financial savings plan is not rocket science if you have acquired detailed information about the product that you are planning to invest in.

What is a Savings Plan?

In simple terms, savings plans are a type of financial tool designed to bring a disciplined savings habit while delivering a decent return. This also ensures that while learning to invest in a disciplined way, you move towards your financial savings plan. As savings plans are primarily a life insurance product, they also provide financial security for your family in case of an unfortunate event.

Best Features of a Savings Plan

Savings plans come with multiple features. However, there are certain key features that you must look for in a savings plan before investing in them. Let us have a look at the best features of savings:

Maturity Benefits

Most savings plans come with assured maturity benefits linked to them. This adds value to your savings and helps you achieve your short-term and long-term goals. Also, if you opt for the best savings plans available in the market, then you might also get added benefits like complimentary additions and bonuses. These additions contribute towards the maturity amount and help you reach your financial goal faster.

Flexibility of Premiums

The payment of premiums in a savings plan can be made on a monthly, quarterly, half-yearly, and yearly basis. Policyholders of a savings plan get the flexibility to choose the frequency of premium payment at their convenience.

Stable and Regular Return

When an individual opts for a savings plan, they can be assured of receiving a stable return that will compound over time. The best part is that the returns on the savings plan are risk-free and regular. This means that you do not have to worry about losing any money that has been promised to you while opting for the policy as per the guidelines. The only condition is that you have to pay your premiums on time and in a disciplined manner.

Top Benefits of Opting for a Savings Plan

While savings plans are simple insurance plans that are focused on security and stable returns, they also offer certain vital benefits. Let us have a look at them:

Protection

A savings plan, as mentioned above, comes with life insurance. Thus, it provides financial protection to your loved ones till the policy lasts. Your dependents get a lumpsum payout amount in the case of an unforeseen event.

Retirement Savings

Savings plans are a great way to build a financial corpus and accumulate retirement funds. They are the safest option and the best long-term investment option that you can opt for. Even with small monthly savings, you can accumulate a good retirement fund for yourself in the longer term.

Tax Benefits

Savings plans are entitled to tax deduction under Section 80C of the Income Tax Act. Additionally, the best savings plan will also offer tax-free maturity proceeds. However, this is subject to Section 10 (10D) of the Income Tax Act.

Factors to Consider Before Investing in a Savings Plan

You can create a safe financial base for the future and gain several tax benefits by putting your money in a savings plan. However, there are a few things to consider while choosing the optimal savings strategy for you and your family.

Risk Capacity and Profile

You must first determine your risk tolerance to locate and select the optimal savings strategy. The two most crucial factors that might affect how much risk a person can bear are personal preferences and age. Investing options with a high level of risk and a high rate of return are often available to young individuals in their 20s and 30s.

Investment Duration

Another important factor to consider when choosing the best savings strategy is how long the money is invested. Numerous savings programs offer investors along- to medium-term investment horizons and additionally function as tax-efficient investment options. Some of these may help you grow your funds throughout your policy term.

Ultimate Goals

You must be certain of your goals before selecting the most advantageous savings strategy. Knowing your end objective makes it simple to choose options for investments that save on taxes. These goals may include setting aside money for your retirement, your child’s higher education or wedding, or even the construction of a home.

Savings Plan Highlights

Different savings strategies have unique advantages. The best investment plans for minimising taxes allow you to take a partial withdrawal over time by forgoing a piece of the policy while keeping the other half with additional perks. However, some savings programmes have a defined term that might be anywhere between 5 and 10 years or even 30 to 35 years.

Flexibility of a Savings Plan

To achieve all of your long-term objectives, you must pick an adaptable savings strategy. You can take care of your unanticipated short-term needs by doing this. They provide you with much more leeway to renounce the policy if the situation demands it.

Who Should Opt for a Savings Plan?

A savings plan serves as a cornerstone of financial stability and security, offering individuals a structured approach to building wealth, achieving financial goals, and preparing for the future. While the benefits of savings plans are undeniable, the question arises: Who should opt for a savings plan? Let us explore the answer to this question in detail.

Individuals with Financial Goals

Anyone with financial goals, whether short-term or long-term, can benefit from a savings plan. Whether you are saving for a down payment on a house, funding your child’s education, planning for retirement, or building an emergency fund, a savings plan provides a systematic way to work towards achieving these objectives.

Young Professionals

Young professionals who are just starting their careers can benefit greatly from a savings plan. By developing a habit of saving early on, they can lay a strong foundation for financial security and future wealth accumulation. Savings plans can help them build an emergency fund, save for major life milestones, and start investing for retirement.

Families and Parents

Families and parents with children have numerous financial responsibilities, from providing for their children’s education to planning for their own retirement. A savings plan can help families manage expenses, save for their children’s future, and ensure financial stability during unforeseen circumstances.

Individuals Planning for Retirement

Retirement planning is a crucial aspect of financial management, and a savings plan is essential for individuals preparing for retirement. Whether through employer-sponsored retirement plans. A savings plan allows individuals to accumulate funds over their working years to support their lifestyle during retirement.

Self-employed Individuals and Entrepreneurs

Self-employed individuals and entrepreneurs often have irregular income streams and variable expenses. A savings plan can help them manage cash flow, save for taxes, and build a financial cushion to weather business fluctuations. Additionally, saving for retirement becomes even more critical for self-employed individuals, as they do not have access to employer-sponsored retirement plans.

Individuals with Irregular Income

Individuals with irregular income, such as freelancers, contractors, or seasonal workers, can benefit from a savings plan to stabilize their finances. By setting aside a portion of their earnings during peak periods, they can create a buffer to cover expenses during lean months and avoid financial stress.

Those Seeking Financial Security

Ultimately, anyone seeking financial security and peace of mind should opt for a savings plan. Whether you are saving for short-term needs like an emergency fund or long-term goals like retirement, having a savings plan in place provides a sense of security and confidence in your financial future.

Things to Consider Before Buying a Savings Plan

With a number of options available, comparing different savings plans can be daunting. However, by considering key factors and conducting thorough research, you can make an informed decision that aligns with your needs and objectives. Here is a comprehensive guide on how to compare different savings plans effectively.

Know Your Goals

The objectives of each investor are unique. While one investor wants to make investments for 10 to 15 years, another wants to make investments for 20 to 25 years. Depending on your goal-setting process, you have various options, including PPF, Fixed Deposits, Mutual Funds, and ULIPs. Most people think that short-term aims can increase their wealth more quickly than long-term ones.

Death Benefits

A family can become completely disintegrated if the primary provider dies suddenly. If buying term insurance is one of your goals, it could be an investment that provides your family with the regular income they require. Normally, do not you want to invest in your family?

Brand Value and Consistency

Purchasing an investment plan from any insurance company could be just as risky as gambling. If you do not want to find up in trouble later, always look for brand value. Here, brand value advises choosing a company that customers are likely to be familiar with and promote. The effectiveness of word-of-mouth marketing is unmatched. The steady expansion that money has shown since its inception is another factor to consider.

Review Flexibility and Features

Consider the flexibility and additional features offered by savings plans. Some plans may allow you to customize your contributions, adjust your investment allocation, or automate savings through systematic investment plans (SIPs) or payroll deductions. Evaluate the features that align with your preferences and make managing your savings easier.

Assess Security and Stability

Assess the security and stability of savings plans, especially if they involve investing in financial markets or institutions. Look for government-backed schemes or plans offered by reputable financial institutions with a strong track record. Ensure that your savings are protected against risks such as bankruptcy or market volatility.

Seek Professional Advice

If you are unsure about comparing savings plans or making investment decisions, consider seeking advice from a financial advisor. An experienced advisor can provide personalized recommendations based on your financial situation, goals, and risk tolerance. They can help you navigate the complexities of different savings plans and create a well-rounded investment strategy.

Regularly Review and Adjust

Lastly, remember to regularly review and adjust your savings plan as needed. Financial goals, market conditions, and personal circumstances may change over time, necessitating adjustments to your investment strategy. Stay informed, monitor the performance of your savings plans, and make changes as necessary to stay on track towards achieving your financial objectives.

What are Some Best Savings Plans in India?

The finance and insurance market in India is heavily crowded, and you will get multiple options as per your financial goal. However, not all options are excellent choices for everyone. Some options possess high-risk factors, while many others offer prolonged growth. Here are the best savings plans that you must check before investing:

Guaranteed Savings Plan

A guaranteed savings plan is a financial product offered by insurance companies or financial institutions that guarantees a fixed return on investment over a specified period. Investors deposit a certain amount of money into the plan, and in return, they receive guaranteed returns, typically at a predetermined interest rate. These plans provide a secure way to save money while offering peace of mind to investors about the safety of their principal amount.

National Savings Certificate (NSC)

The National Savings Certificate is a government-backed savings instrument available in India. It offers a fixed interest rate and is designed to encourage small savings among individuals. Investors purchase NSCs from post offices or authorized banks for a specified denomination and lock in their investment for a predetermined period, typically five or ten years. The interest earned on NSCs is compounded annually and is eligible for tax benefits under Section 80C of the Income Tax Act.

Recurring Deposit

A Recurring Deposit (RD) is a type of savings account offered by banks and financial institutions that allows investors to deposit a fixed amount of money at regular intervals, typically monthly, for a predetermined period. RDs offer a fixed interest rate and are designed to help investors accumulate savings systematically over time. At the end of the investment period, the investor receives the principal amount along with the accumulated interest.

Public Provident Fund (PPF)

The Public Provident Fund (PPF) is a long-term savings scheme backed by the Indian government. It offers attractive interest rates and tax benefits to investors. Individuals can open a PPF account with authorized banks or post offices and make contributions towards it annually. The invested amount is locked in for a fixed tenure of 15 years, with the option to extend the account in blocks of five years thereafter. Contributions to PPF accounts are eligible for tax deductions under Section 80C, and the interest earned is tax-free.

Senior Citizen Savings Scheme

The Senior Citizen Savings Scheme (SCSS) is a government-sponsored savings scheme targeted at senior citizens aged 60 years and above. It offers a higher interest rate compared to other savings schemes and provides regular income to retirees. Individuals can open an SCSS account with authorized banks or post offices and invest a lump sum amount for a tenure of five years, extendable for another three years. The interest earned is taxable but is paid out quarterly, providing a source of regular income for senior citizens.

Atal Pension Yojana

The Atal Pension Yojana (APY) is a government-initiated pension scheme aimed at providing financial security to workers in the unorganized sector. Under APY, individuals contribute towards their pension during their working years and receive a guaranteed pension amount upon retirement. The scheme offers fixed pension amounts ranging from ₹1,000 to ₹5,000 per month, depending on the contribution and age of the subscriber. APY contributions are eligible for tax benefits, and the scheme is administered by the Pension Fund Regulatory and Development Authority (PFRDA).

Sukanya Samriddhi Yojana

The Sukanya Samriddhi Yojana (SSY) is a government-backed savings scheme targeted at the financial security of the girl child. Parents or guardians can open an SSY account in the name of a girl child aged below 10 years. Contributions to the account can be made until the girl child reaches 15 years of age, and the account matures after 21 years from the date of opening. SSY offers attractive interest rates and tax benefits, making it an effective tool for long-term savings for the education and marriage expenses of the girl child.

Final Words

A savings plan is a stepping stone for financial success, guiding individuals on a path towards achieving their financial aspirations and securing their future. By implementing a systematic approach to saving, budgeting, and investing, individuals can take control of their finances, build wealth over time, and ultimately enjoy greater financial freedom and peace of mind.

Key Takeaways

  • A savings plan is a financial strategy designed to set aside money regularly for future goals or emergencies.
  • Savings plans are structured to help individuals achieve specific financial objectives, such as buying a home, funding education, or building an emergency fund.
  • Key to savings plans is making consistent contributions, whether monthly, quarterly, or annually, to accumulate funds over time.
  • A critical component of a savings plan is establishing an emergency fund to cover unexpected expenses or financial setbacks.

FAQs


1

How do I create a savings plan?

To create a savings plan, start by identifying your financial goals, assessing your income and expenses, and determining how much you can afford to save each month. Choose appropriate saving options based on your goals, risk tolerance, and set up automatic contributions to your savings account or investment account.



2

What types of financial goals can I achieve with a savings plan?

A savings plan can help you achieve a wide range of financial goals, including building an emergency fund, saving for a down payment on a home, funding education expenses, planning for retirement, or saving for a vacation or other major purchases.



3

How much should I save each month?

The amount you should save each month depends on your financial goals, income level, and expenses. As a general rule, aim to save at least 10-20% of your income, but adjust this amount based on your individual circumstances and priorities.



4

Can I adjust my savings plan over time?

Yes, you can and should adjust your savings plan as needed to accommodate changes in your financial circumstances, goals, or market conditions. Regularly review your plan, monitor your progress, and make adjustments as necessary to stay on track towards achieving your financial aspirations.

- 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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