Work hard, but make your money work harder!
Ask any successful investor and he will most probably respond with this statement. Money does not grow on trees but your hard-earned money can definitely grow multi-fold even at night when you are sleeping peacefully. Starting early gives you the advantage of the time that you can use prudentially to create wealth. The power of compounding can create a huge savings kitty only if you start early. In fixed deposits, the interest earned is reinvested which in turn creates a bigger principal and hence the power of compounding sets in. In the case of wealth creation instruments such as equities, staying invested for a long run will give you the benefit of multiple surges in the stock market.
If you have recently started working, you must have a savings plan and definitely start investing immediately because you can explore different saving plan features before finding your right fit. Presuming your financial commitments are less at that stage, you can afford to allocate money to different asset classes and build a base that you can gradually grow with time.
Five Savings and Investments Priority List
It is never too early to start planning for retirement. With spiralling inflation, slowing wage growth and rising life expectancy levels, accurate planning is now a must. Retirement planning is a two-pronged strategy, wealth creation in the initial phase and wealth conservation later as you inch closer to retirement.
For example, Invest 4G plan of Canara HSBC Life Insurance Company helps you do exactly that. You can systematically invest a fixed amount of money each year in the form of premiums and enjoy fund growth as well as a life cover.
When you are young, you can invest aggressively in equity-oriented funds that will give you extraordinary growth during bull-runs in the stock market. You have the flexibility to decide % allocation to funds of your choice.
The Auto Fund Rebalancing (AFR) maintains the defined proportion at pre-defined intervals. The Systematic Transfer Plan (STP) gives the flexibility of moving your money to different funds and can be used to park money in debt funds during bear markets and invest in equities when there is an anticipation of growth.
2. Life & Health Insurance
Healthcare costs are already high and also growing faster than the average rate of inflation. With newer diseases on the rise, the need for health insurance is more than ever. Treatment for even minor ailments can cost lakhs of rupees in high-quality private hospitals. Affording treatment for critical illnesses have now become almost out of reach of the common wo(man).
Health insurance can come in handy in covering the costs of hospitalization. Some policies even offer unconditional lumpsum payments to cover incidental expenses caused due to specified illnesses. This is important because when an income earner falls sick, s/he not only expends money on treatment but also loses income by staying away from work.
In an era where people live by the paycheque, what if the family’s breadwinner dies? A life insurance policy is the only known, reliable solution that financially safeguards the family in the event of an unfortunate demise of the policyholder. The lumpsum Sum Assured is paid out to the beneficial nominee irrespective of when the insured dies during the term of the policy.
What’s more, in policies such as iSelect Smart360 Term Plan, of Canara HSBC Life Insurance Company, there are additional riders to cover permanent total disability as well. In such cases, a specific amount is paid to the insured and the policy continues as usual but the insured will not pay the future premiums. The company would do it. iSelect Smart360 Term Plan also has a return of premium option where all paid premiums are returned to the policyholder if they survive the policy term.
3. Emergency Fund
Markets are volatile, incomes are uncertain, health is constantly challenged and costs are rising. A fund to manage contingency expenses is recommended so that there is no rude shock. Such a fund is possible only if you save and invest wisely. Invest 4G allows partial withdrawals which means you get the advantage of aggressive growth clubbed with the option of flexible withdrawals. You can use this money to fund any exigencies.
4. Long Term Wealth Goal
You need a guaranteed amount at the end of a specific period to fund your child’s education or build your dream house. You may want this in a stream of pay outs over a couple of years because University fees are paid each year and house construction costs are also borne in stages basis progress. Guaranteed Savings Plan or the Guaranteed Income4Life are plans that fit this need because you invest only for a defined period and get returns in the form of guaranteed pay outs for the rest of the term.
5. Short Term Goals
Short-term lifestyle goals tend to focus on immediate needs such as fitness, family vacation and car etc. If you have started investing early on, your fund balances would have witnessed significant growth that will make some lifestyle aspirations more affordable.
Investment Options for Beginners
If you are just setting out and exploring options to build your investment portfolio, the savings plan for beginners mentioned above can come in handy. Saving and investing about 10%-15% of your current income in Invest 4G or even National Pension Scheme (NPS) can help you live a comfortable retired life. Health insurance is critical to overcoming medical expenses and pure term insurance plans give peace of mind because your family is now financially safeguarded.
Mediclaim plans can cover some of your hospitalization expenses but policies such as Health First are wholesome because of their flexibility and more holistic coverage. Emergency funds can be in the form of Fixed Deposits (FDs) but even some insurance policies offer partial withdrawals after an interim lock-in period. Guaranteed return insurance plans and National Savings Certificates (NSC) are safe financial instruments to conserve wealth for the long term.
So, if you are just exploring investment options and the benefits of savings plans, these pro tips can help you get started.