As expenses increases with the quality of living, the rising demand for dependable saving plans is inevitable. With a variety of savings and investment plans, it's natural to feel confused. At Canara HSBC Life Insurance, you can choose from a wide range of monthly investment plans. You must buy the best savings plan as it is important for your long term as well as short term financial goals. However, there are certain factors that you must consider to find the best saving and investment plan to align with your risk appetite.
What is a Monthly Investment Plan?
A Monthly Investment Plan is a type of investment that requires you to invest a certain sum of money every month. On this investment, you get monthly returns. These returns are the interest or the dividend received.
Know More About - Dividend Distribution Tax (DDT)
Here are the characteristics of the best monthly investment plan
1. It helps you to get steady returns
There is no fixity of returns in a monthly investment plan. But the best monthly investment plan makes sure that the returns are steady enough and not highly volatile.
2. Suitable for the ‘Safe Investor’
Monthly Investment Plans are designed for investors who are risk-averse. That is, they do not like to take up many risks. These offer you relatively low but guaranteed returns.
3. Debt Focused
The investments in Monthly Investment Plans are debt-heavy. The best Monthly Investment Plans invest 70-80% of your sum in Government-backed Debt Instruments.
4. No Limit on investment
The best Monthly Investment Plans have no limit on investment. You can invest as much as you want.
5. Ease of entry and exit
There are no entry restrictions in MIP. You can enter any time. Also, you will face only a minimal charge of 1% if you decide to exit from the plan.
How does a Monthly Investment Plan Work?
A Monthly Investment Plan or a Monthly Income Plan provides you with a stable alternate source of income at a relatively lower risk. Here is how a Monthly Investment Plan works.
You are required to pay the premium regularly for as long as your chosen premium payment term is. After you have paid all your premiums, now you will start getting monthly returns.
Now, the following two cases can arise. Let us look at them one by one
1. If you manage to survive the policy term
In case you survive till the maturity of your MIP, you will receive the maturity value along with any accrued bonuses. The policy will expire after paying the maturity benefits.
2. If you die during the term
If you do not survive the term, then the nominee will receive the death benefit along with the accrued bonuses till the time of death.
3. Death Benefit with Premium Protection Option
Under this benefit, if you die during the policy then your nominee will receive the death benefit in the year of your demise. But the policy continues and the remaining premiums are waived off.
Your nominee will also receive the maturity benefit from the policy at the time of maturity as intended at the time of purchase.
Rahul purchases a monthly investment plan with a sum assured of Rs 20 lakhs. The policy duration is 20 years and a premium payment term is 10 years. Now he will pay the required premium for 10 years, and for the remaining period, he will receive regular payments.
If Rahul dies in the 8th year of the term, his appointed nominee will receive the death benefit of Rs 20 lakhs plus any accrued bonuses and the policy will expire.
However, if he had selected the premium protection option at the time of purchase the following will happen:
- Rahul’s nominee will receive Rs 20 lakhs as a death benefit in the 8th policy year
- The investment part of the policy will continue with the insurer paying the remaining premiums for the next two years
- The policy will continue for another 12 years until its planned maturity date
- Upon maturity, Rahul’s nominees will receive the maturity value from the policy along with any bonuses
Thus, the premium protection option can help you safeguard your family’s important future goals.
13 Factors that Affect your Choice of Monthly Investment Plan
Investing monthly in suitable saving plans is beneficial in the long run. Doing so will give you a financial safety net in the future while making you financially disciplined. As mentioned before, choices are plenty when it comes to saving plans, but your choice should depend on certain criteria. Given below are some of the important factors to consider while opting for a monthly saving plan.
1. Set your Goals
Before even looking at your options, you should make a credible list of your short-term financial goals. Keeping a list will make your goals more clearly defined, and that will help you to choose a monthly saving and investment plan with more clarity. Ask yourself these questions,
1) Why are you investing, and for what?
2) What kind of risks can you take?
Take your time to answer these questions and use them to set your goals. Your goals will then help you to choose a savings plan best suitable for your needs.
2. Find a Balance between Risk and Reward
For this, ask yourselves the question, what kind of risks can you take? You have to answer honestly, and the answer should cover every aspect of the reasons behind your investment venture. While answering, make sure to point down the risks and the rewards, the pros, and cons. Look at the results and weigh the pros and cons.
The investment won't be manageable if the risks are too high, and you have to sacrifice product quality to keep the rewards high. This is why you should balance the two while searching for the best savings plan.
Create an idea or choose a life insurance plan where risks and rewards exist in harmony and then invest in a savings plan that benefits from and keeps the harmony.
Liquidity refers to the ease with each asset, or security can be converted into ready cash without affecting its market price. In simple words, liquidity describes the degree to which an asset can be quickly bought or sold in the market at a price reflecting its intrinsic value.
As we know, cash is considered the most liquid of assets because it can quickly and easily be converted into other assets. That is why your saving schemes should have adequate liquidity to satisfy your needs. You need to make sure that the investment plan will provide funds in an emergency. Therefore, consider your liquidity requirement if you want to choose the best savings plan.
4. Understand the Tax Reductions Offered
When you invest in saving plan, consider the tax benefit offered by the plan. Various policies like life insurance and health insurance offer a tax benefit. Investing in such products would help you when you're in need of funds or when you need financial assistance in the event of a medical emergency. Even saving plans offer tax benefits under Section 80C of the Income Tax Act.
Discuss with your investor and find out, in detail, about the products and the benefits you get from a plan. Choose a saving plan with the best benefit and which would cater to your needs.
5. Check out the History
Discuss with your investor about the different types of monthly investment plans available for you. Also, check and review the life insurance company to find out their credibility and reliability.
Do the research on your own; ask friends, family, relatives about the preferred plan, get advice. You should also find out the history and customer reviews of all the saving plans available.
Compare the plans with each other; a comparison will tell you how strong or weak a particular monthly investment plan is.
Choose saving and investment plan that the majority of customers preferred and with the most number of good reviews. Don't downgrade yourself into choosing the less preferred option; choose saving plans with the most benefits.
6. Check the Features of the Savings Plan
Your monthly investment plan should not be restricted. It should not be restricted to having only one investment product.
Discuss and ask for a saving plan with the maximum number of investment products. You will have to diversify the investment plan to reduce the risk associated with the same. Check out customer reviews, ask for advice, compare the saving plans and choose the one with the investment products that you think will be beneficial. Consider all the available options, which serve your purpose and diversify the plan along with your investment portfolio.
7. Plan should Suit your Current Lifestyle
With the rise in the price of commodities, livelihood is becoming expensive. Without a best savings plan, you could easily find yourself in situations where you have availed for loans.
Take your livelihood, your lifestyle, and your monthly income into account while searching for the best savings plan. Make sure whatever amount you invest in is the minimum requirement in your household. As usual, don't be afraid to ask for advice. Have a tracker about how much monthly expense you have and how can you reduce it to invest in a monthly investment plan. Choose a saving plan that takes into account your livelihood.
8. Performance of the Savings Plan
Review your investment portfolio as frequently as possible. Make sure you are up to date on all changes that affected your plan.
Discuss with your investor to check if the changes are beneficial to you or not. Check out the history and the customer reviews of the same. Make sure to ask the right questions. Once you make an investment, it's important to be updated on it every day, if necessary. Review your investment portfolio and take necessary actions to maximize your profit.
9. Create and Maintain an Emergency Fund
Most smart investors put enough money in emergency saving schemes to cover an emergency like sudden unemployment. Make sure you have saved up your income for a particular amount of time so that you won't be caught in an uncomfortable situation.
10. Pay off High-interest Credit Card Debt
If you have any ongoing debts, for example, credit cards, or any other loans – pay them off as soon as possible. Because they are high-interest debts and the more time you take to pay them, the more interest you have to pay.
11. Take Advantage of "Free Money"
In most employer-sponsored retirement plans, the employer will match most of what you contribute. If your employer provides a retirement plan and you don't add anything from your end to get your employer's maximum match, you are passing up "free money" for your retirement savings.
12. Avoid Circumstances that can Lead to Fraud
These days scams are more prevalent, and people often fall for such traps. Scammers use highly publicized news to lure people into making a bad investment by making their offer sound legit.
However, asking the right questions can prevent you from falling for it. If you are considering saving plans from a non-banking entity, it is best to do some research on finding the best saving plan and the provider.
13. Terms and Conditions
Ask all the necessary questions regarding the terms and conditions of your savings plan. If you have any questions or doubts, you can either directly ask the life insurance company or you can discuss with your financial advisor.
Saving and investment plans can be complicated as there are various terms and conditions associated with them. Therefore, buy the best savings plan only when you're satisfied that it will meet your needs and demands. Clear all your doubts before you put your money into it.
Make sure you have goals and ambitions straightened out. Do ample research about the topic and learn everything you can about the saving plans you have been offered. Choose a savings plan that is well suited to your needs, ambitions, livelihood, and future. Keep these factors in check and choose wisely.