Why do you need savings and investment plans? Trying to answer that question may sound like stating the obvious. However, it is important to figure out why we do something because it gives us the motivation to continue or to start doing that thing.
Hopefully, the answers below will motivate you, too, to save and to invest. Let’s begin with the basics.
Some say a “penny saved is a penny earned” while others say that we need to “save for the rainy day.” Both statements are true and are the primary reasons behind why we save money. Besides primary needs, human beings have dreams, desires and plans that can only be achieved if we save.
Imagine this scenario. Anand earns a salary of Rs. 1 lakh per month but at the end of the month, he has nothing left. He has no savings and therefore no investments. If he goes on this way, Anand will never be able to secure his future or that of his loved ones.
If you are not saving or investing, you are earning but not generating wealth. Therefore, unless you are saving or investing, it doesn’t matter if you earn Rs. 10,000 or Rs. 1 lakh per month.
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Types of savings
You can save money through different means but it has its limitations. For example, you can open a savings bank account and hold your money and earn interest rates ranging from 4-6% per annum. You can save in cash at home but it also has its limitations, and comes with legal and physical risks.
Unless you are saving money for an emergency fund or to pay off a debt or purchase something, it is better to invest the money that you have saved. Idle money is unproductive. The best way you can utilize money to your advantage is by investing it.
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If savings is a seed, investing is the soil. Unless you put the seed of savings into the soil of investing, you won’t be able to grow long-lasting wealth. It’s as simple as that. In today’s world we have numerous investment tools and options that can help us grow wealth. You can invest in stocks, bonds, mutual funds, ULIPs, pension plans, gold, FD and real estate. Choosing the right investment plan or the best investment plan is all about evaluating your financial goals, investment horizon and risk profile.
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Types of investments in India
The Indian financial market provides an overabundance of choices for investors. You can select from best investment plans that provide good returns, are cost effective, carry moderate risk, are flexible, and come with maximum tax benefits. Some of these investment options include:
Buying a stock or share of a company is called equity investment. It is perhaps the oldest and most effective form of wealth generation. They have the potential to offer high returns to investors but also carry maximum risks as stock prices fluctuate a lot.
Investing in a mutual fund is an indirect way of investing in stocks and debt instruments such bonds. A mutual fund is handled by a fund manager who invests in various stocks, bonds and other assets to earn good returns on investment for the fund. Compared to directly investing in stocks, it carries less risk and you get the opportunity to enjoy market-linked returns. Mutual funds are one of the most popular types of investments in India.
Unit-linked insurance plans (ULIPs)
ULIPs are a unique investment product that offers investors the best of both worlds. It provides opportunities for insurance protection, wealth generation and tax benefits. ULIPs provide you the flexibility to allocate funds in 6-7 different funds according to your investment goals, investment horizon and risk appetite.
If you want to create long-lasting wealth, you should select the right investment plan and start early in your investment journey. When you decide to invest, you should have short-term, medium-term and long term goals with different time frames. For short-term goals you can invest in bank FDs; for medium-term goals, you should invest in mutual funds; and for long-term goals, you should invest in equity and ULIPs.
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