Want to save money for a future goal? A long-term savings plan is your savior. It is never too late to save some money, which would help you in unforeseen circumstances in the future. A long-term savings plan is a type of investment where you save your money you do not plan to spend at the moment. Indians have a relatively high savings rate, around 19.68% of GDP, according to national statistics.
As easy as it sounds, saving is not a piece of cake. Gone are the times when putting a 1 rupee coin in a piggy bank was all you had to worry about. A long-term savings plan requires a lot of contemplation to choose a plan which suits your plans and financial conditions the best. Keeping in mind the current conditions, it is important to choose the perfect online savings plan for your family.
7 points to consider while choosing a long-term saving plan
- Future goals
Your goals are the pushing factor, which is urging you to invest in money-saving plans. Make a list of all the long-term and short-term financial goals and then, choose a plan which suits your future goals perfectly. For, e.g., if you are saving up for a brand new car, a savings plan with guaranteed returns will be perfect for you. On the other hand, if you are saving for a long-term goal, you will require a plan which will guarantee you the fulfillment of the goal.
- Available on online platforms
You will need to check whether the plan you are choosing is available online or not. With its online availability, you also need to check if there are options for online investment, management, and withdrawal. In online savings plans, there are options for auto-debit, which are beneficial for salaried individuals.
- Aspect of liquidity
Before choosing among long-term online saving plans, consider your liquidity requirement. The savings plan you choose should provide you with adequate liquidity to satisfy your long-term needs. You should be able to withdraw money from the funds in a time of emergency.
- Tax exemption
Make sure to consider plans which provide tax benefits like tax exemption and tax-free maturity value. Tax liabilities can cut-off a part of your return, leaving you with deducted money. Investing in long-term savings plans that enable tax exemption not only saves your tax money but also protects you in times of emergency. Under section 80C of the Income Tax Act, a maximum of Rs. 1.5 lakh can be claimed for tax exemption.
- Risk & reward factor
One of the most important factors in a savings & investment plan is the risk and reward factor. Every individual differs in terms of risk appetite, and it is essential to select the best savings plan in India for you, according to your risk appetite. The balance between the rewards and the risk in the plan has to be favorable.
If you are hunting for a long-term online saving plan, you need to choose a savings plan which gives you guaranteed returns with low levels of risk, just like Canara HSBC Oriental Bank of Commerce Life Insurance's Guaranteed Savings Plan. This plan not only gives you the benefit of guaranteed returns of the intended maturity value but extra loyalty bonuses for investing in the plan for a long period.
- Reviewing the plan and updating investment portfolio
The performance of the plan is also a significant feature to examine. Your investment portfolio should be reviewed at least once a year to make necessary changes and locate areas where you can try to get more returns. Also, while reviewing the plan, see if you can diversify and invest in more than one investment product. Diversifying reduces the risk associated with each plan.
- Flexible terms & conditions
With investment in a savings plan, terms and conditions are bound to be applied. However, luckily, some savings plans have flexible and compatible terms and conditions. In the flexibility factor, you will have to look for flexibility in investment mode and investment period. Try to find a plan which gives you options in both categories.
The Online Invest 4G savings plan by Canara HSBC Oriental Bank of Commerce Life Insurance offers all kinds of investment modes. With life cover and wealth boosters, it is one of the best savings plans in India. It is a package of great returns with flexible switch options.
Types of long-term savings plan
Now that you are well-versed with the conditions you have to keep in mind to choose a savings plan, here are the most popular types of long-term saving options, which people in India invest in:
- Unit Link Insurance Plans (ULIP’s)
In a ULIP saving plan, the individual gets the benefit of both investment and insurance. You have to pay a premium monthly or annually. A part of this premium is used to cover your costs of insurance, and the other part is used as an investment to the fund of your liking. You get the best of both worlds and a secure long-term plan. There are options for equity, hybrid, and debt funds.
- Public Provident Funds (PPF) -
If you are looking for a plan with constant interest at the lowest risks, this is the plan for you. PPF offers tax exemption, making it more considerable. The tenure for a PPF is 15 years and can be extended for five more years.
You can withdraw funds after five years from the beginning of the plan. It is a post office savings scheme. There is flexibility in this plan in terms of the investment amount. With a small investment, you can acquire great returns in a PPF.
- National Pension Schemes (NPS) -
This scheme is a public scheme backed by the Government of India. Individuals between the age of 18-60 can invest in this scheme. The age limit has been extended to a maximum age of 70 years. Through this scheme., you can invest in equities, debts, and other such instruments.
The final pension you acquire is your return on the investment. In cases of emergencies, this scheme gives you the liberty of withdrawing a partial amount of funds.
- Equity Linked Savings Scheme (ELSS) -
ELSS is one of the best mutual funds as it becomes eligible for tax exemption when the investments are under 1.5 lakhs. It is the only scheme that gives you the incentive of tax exemption and guarantees you high returns in the future.
The only drawback of ELSS is that it entails higher risks than other schemes. Every deposit in a particular account has to follow a strict lock-in period of 36 months, and thus, it is not possible for you to withdraw funds from the account under any circumstances. You will have to wait for the lock-in period to cease.
- Guaranteed Savings Scheme -
A guaranteed savings scheme is a safer alternative to ULIP, as it contains less risk with guaranteed returns. You can also claim tax benefits like tax exemption in this scheme. It provides life cover for the entire term, but you pay the premium only for a limited period. You can choose the payment term according to your payment capacity and horizon.
|Scheme||Duration||Rate of Interest*||Amount Contributable||Taxability of the Returns|
|ULIP||5 years (minimum) - 20 years (maximum)||It is not fixed. Depends upon the ULIP fund performance||Minimum- Rs. 2500
|PPF||15 years||7.1% p.a.||Minimum- Rs.500 per annum
Maximum- Rs.1.5 lakh
|Interest income is tax-exempt.|
|NPS||Until the age of 60 years||5% p.a.to 8% p.a.||Minimum- Rs.1,000 per annum
Maximum- No limit
|Upon retirement, 60% of the corpus is tax-free. Annuity pension received on balance 40% is taxed at slab rates.|
|ELSS||3 years||Not fixed.||Minimum- Rs.100 per annum
Maximum- No limit
|Long-term capital gains taxed at 10% + dividends from ELSS is taxed at 10%|
|Guaranteed Savings Scheme||Until the age of 60||NA||Minimum- Rs. 1800
|Taxable under section 80C of Income Tax Act.|
Table 1. Comparison between different schemes
Saving is the smartest decision one can take in their life. It helps you in all kinds of emergencies and plays a major role in fulfilling your future financial goals. A long-term savings plan increases your annual income, generates income on idle cash, gives you life coverage and other such incentives.
While choosing an online savings plan, it is recommended to compare different plans, be thorough with all the terms and conditions, and then invest. There are a lot of options in the market for money savings plans. However, the tough nut is to choose the right one!