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 financial products is not rocket science if you have acquired detailed information about the product that you are planning to invest in. Savings plans are among the most popular financial products regarding investment. Even when you keep your money in the bank, you keep it in a savings account that yields you some interest on your deposit. In this article, we will discuss the definition, usage, and all the essential factors related to a savings plan. So, if you are looking for an accurate answer to what is a savings plan, we have got you covered.
What is a Savings Plan?
In simple terms, savings plans are a type of financial tool designed in a manner to inculcate a disciplined savings etiquette while delivering a decent return. This also ensures that while learning to invest in a disciplined way, you inch towards your financial goal. 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’s 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.
The flexibility of paying 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 don’t 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.
Life insurance cover
Savings plans come with life insurance. This is a vital financial asset as it ensures the financial safety of your loved ones in case of your unfortunate demise. So, while having the most secure form of investment at your disposal, you are getting the added benefit of life insurance.
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’s 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
To prepare for unforeseen events and maintain a stress-free life, financial planning is crucial. The most reliable approach to ensure a secure financial future is to start saving regularly at a young age. A person can create a safe financial bubble for the future and gain several tax benefits by putting their money in a savings plan. However, there are a few things to consider while choosing the optimal savings strategy for you and your family.
1. Risk capacity and profile
You must first determine your risk tolerance in order 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. They can opt for riskier options, including putting more money into stocks or the equity market than into the debt market.
If you want to invest in plans with more risk and bigger profits, it is a sensible choice to invest in a Unit Linked Insurance Plan (ULIP). Instead, individuals who are not prepared to assume a considerable level of risk are best served by a regular investment or a money-back saving plan. With these moderate risk savings programmes, investors have assured a return, but at a lower rate of return.
2. 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.
You can start investing with a small sum and gradually increase your corpus. It is possible to invest a small sum in savings plans because most financial institutions recognise that an individual’s income and savings fluctuate with age and provide them with the option to increase or decrease the amount to be invested.
3. 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.
4. 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.
You can select the greatest savings plan that can offer you security and savings thanks to numerous options and wide coverage. As a result, it is critical to consider all the positive aspects and characteristics of a savings plan before choosing one.
5. The flexibility of a savings plan
To achieve all of your long-term objectives, you must pick a savings strategy that is adaptable. 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.
To get a better rate of return at maturity, it is preferable to hold onto the tax-saving investment savings plan for longer.
Who should opt for a savings plan?
While middle-aged investors who are dedicated to increasing financial commitments towards family and self should choose savings plans that include low to medium risks, younger investors in their 20s who typically have little financial obligations can afford to participate in a high-risk savings plan.
How to compare different savings plans?
1. 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.
2. Assess the Risk Profile
It is true that an investor will hesitate and opt for one with a smaller risk of market growth when there is a higher investment risk and volatile market conditions.
3. 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, don’t you want to invest in your family?
4. Brand Value and Consistency
Purchasing an investment plan from any insurance company could be just as risky as gambling. If you don’t 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.
The 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 of 2022 that you must check before investing:
1. Guaranteed Savings Plan
2. National Savings Certificate
3. Recurring Deposit
4. Public Provident Fund (PPF)
5. Senior Citizen Savings Scheme
6. Atal Pension Yojana
7. Sukanya Samriddhi Yojana
Conclusion
While you may be investing in other financial products, it is important to consider investing in a savings plan too. They are stable and reliable and keep you prepared for any eventualities without worrying about any kind of loss.
FAQs
1. How much money should I start saving at the age of 25?
The more you save before retirement comes knocking, the earlier you start. For instance, if you are 25 years old and are saving 15–25% of your income in addition to your monthly costs, you will accumulate a respectable sum of savings over time.
2. How much money should I accumulate using a savings plan?
You should set aside at least 20% of your salary for savings. More is wonderful, but conserving longer can require less.
3. Can savings plans help to save tax?
The Indian government permits various tax exemptions and deductions on the guaranteed savings plan following the requirements of the Income Tax Act of 1961. These deductions may be made by the taxpayer when submitting an income tax return.
4. Who is eligible to invest in a savings plan?
A National Savings Certificate can be purchased for a certain sum of money and provides the investor with a predetermined amount upon maturity. At maturity, investors receive their interest from NSC. Anyone above the age of 18 is eligible to invest in this tax-saving venture.
5. Should I pick a long-term or a short-term savings plan?
If you want to keep your money secure and are happy with small profits, choose short-term investments. However, you should put money into long-term investment opportunities if you want to make more money.
