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Things to not expect from a Savings Plan

dateKnowledge Centre Team dateDecember 05, 2020 views189 Views
Things to not expect from a Savings Plan

A savings plan is a life insurance investment plan that offers various prospects and is not limited to just saving money. It also helps in investing and multiplying your money efficiently and systematically. The investment will empower an individual to meet the financial needs of his/her family and fulfill his/her financial goals. According to a survey in 2018, in India, as much as 83% of people have planned their retirement by investing in a savings plan. Indians have maintained a high net savings rate, which is about 19.7% of GDP. This is because the savings-investment plan comes with numerous features to help individuals fulfill their financial goals. Let's explore these features:

Entry Age and Tenure:

With savings plans, people usually get a broader entry age with versatile investment tenure. The determination of the risk appetite of the policyholder is done by the entry age. Thus, a saving plan is planned out based on the risk profile of the policyholder. Since people in their 20s and 30s take higher risks to receive profitable returns, unit-linked insurance plans (ULIPs) will be suitable. Contrarily, the people who are reluctant to take risks are more suited for money back plans, thus keeping their money safe despite low returns. Additionally, the mid-to-long term investment tenure allows depositing a significant corpus during the period.

Life Cover and Riders:

There are particularly some saving plans that are preferred over others. For example, ULIPs are preferred due to the dual benefit of a life insurance cover and market-linked savings returns they offer. Also, LIP savings plans have an option of adding specific riders. These riders benefit from enhancing the financial protection of the policyholder and his family in case of any disability, illness, or accidental death.

Investment Options:

Savings plans offer a variety of options when it comes to investing in financial instruments. It ranges from equities involving reasonably high risk to traditional and safer instruments such as fixed interest securities. It can be any corporate bonds, government securities, and money market instruments.

Charges:

While selecting a savings plan, it is essential to know about the extra costs and charges associated with certain actions. The other extra expenses can be in the form of fund management charges, discontinuance charges, fund management charges, premium allocation charges, switching charges, mortality charges, partial withdrawal charges, and other miscellaneous charges. These attached charges cannot be avoided, but the best plan will have minimum charges and offer versatility regarding cash withdrawal, receipt of the policy term, and bonus.

Tax Benefits:

A good savings plan should also be instrumental in saving tax. According to the 80c of the Indian Income Tax Act, 1961, the premiums of most life insurance savings plans can be deducted from taxable income up to Rs. 1 Lakh. Besides, under section 10D of the Indian Income Tax Act, 1961, the benefits of maturity and death are also subject to tax exemption. Thus, the savings plan is the most preferred tax saving instrument.

With so many options, it can be quite a task to choose the right savings plan. Let us see how to go about choosing the right one.

How to choose the right guaranteed savings plan?

The market is full of several saving investment plans, and every plan has its circumstances corresponding to it. It is essential not to invest in a wrong savings plan without thoroughly researching the fund and plan's assets allocation. One way of collecting information is by doing a proper background check about a suitable savings plan's features. Many people decide to buy a savings plan online as it is a better way to avoid any brokerage or excessive and arbitrary charges. However, it is paramount to indulge in some self-study on the savings plan best suited for you.

To meet any unforeseen financial commitments, people save ample money and build a vast corpus. However, you need a certain plan to think smartly and always look ahead at the big picture. Let us explain what things should be kept in mind while doing so are.

  • Clarity of goals

    Primarily, you have to make a checklist of the financial goals which you wish to achieve in life. It should be a structured goal for every step of your life, such as house buying, marriage expenses, child care, and early retirement. With this checklist, you will have a brief idea of how much money to set aside every month. If you are planning to invest in savings, preparing a checklist is crucial once you start earning.

  • Choice of investment

    Since you have many profitable options to save your money, you can benefit from it. Presently, ULIP is the best saving plan as it offers dual benefits of insurance and investment. Based on your risk profile, the premium amount is invested in equity, debt, or a combination of both of them based on your risk profile. It will thus give you a good return and secure your family financially during an unforeseen event.

  • Automatic transfers

    You have to set your salary account so that the money is automatically transferred to the investment account. Thus, a direct debit will not tempt you to hold back the money, since the transfers are done automatically on a specific date. However, if you have opted for manual transfers, you might skip saving for a few months.

  • Contingency fund

    Life is unpredictable, and thus you should always plan for contingencies or emergencies you might come across when you expect it the least. It is always better to set aside at least some percentage of your monthly salary for a contingency fund. Thus it will help you meet the unfortunate expenses with confidence. For this, you must choose highly liquid investment choices such as bank deposits because there might be a requirement for quick cash.

  • Wise and Planned Expenditure

    To start saving regularly, you should cut down all of your unnecessary expenses. Always try avoiding the usage of credit cards as the interest rates on them are relatively high. It is advisable to use cash or your debit card while shopping. This helps you keep track of how much money you're spending, thus instilling a sense of financial discipline.

    Now that you have a brief idea about how to go about choosing the right plan let us see what the status of saving plans in India is.

Status of Saving Plans In India

India maintains a reasonably high net savings rate. The national saving rate is almost 19.68 per cent of the entire GDP. However, in 2019, the gross savings rate and net savings rate declined by around 7% and 12%. Moreover, net savings rate growth as a % of GDP has been regularly falling since 2011-12. Besides, a considerable percentage of income is still in the cash or currency form. People invest them in low-yielding bank deposits and unproductive assets like Gold. This whole scenario needs to change.

To determine the best saving plan, you need to finalize an investment horizon and narrow down your risk appetite. Also, you must be careful about the specifics of the saving plan you are opting for. Consider all the vital factors such as the features of the saving plan offers, how flexible it is, and other additional benefits such as add-on riders.

Below is a table of interest charts of various saving plans in India.

Savings Plan Rate of Interest Guaranteed Income
Fixed Deposit 5.5-7.5% Yes
Public Provident Fund 7.10% Yes
Recurring Deposit 4.5-6.5% Yes
Liquid Mutual Funds 6.5-7.5% Low-risk Market Linked Returns
Equity Linked Savings Scheme 12-15% Market Linked Returns
Equity Mutual Funds 12-15% Market Linked Returns

Now, let us talk about the above plans in brief.

  • Fixed Deposit- FDs are low-risk investments. Investors can invest a particular sum of money for a specified period and earn a fixed interest rate. Upon maturity, the investor can redeem the money along with interest. FDs come with a five year lock period.
  • Public Provident Fund- PPF contributions are subject to a tax deduction. Investors can claim up to INR 1,50,000 for a tax deduction. Also, the returns are free from tax. The minimum investment is ₹ 500, and the maximum is ₹ 1,50,000. The rate of interest is compounded annually, and an investor cannot open multiple accounts. It comes with a 15 years lock period.
  • Recurring Deposit- You can invest a minimum amount of ₹ 500 for a bank RD, and ₹10 for a post office RD. The interest differs from bank to bank. Besides, the interest rates are subject to market fluctuations. The tenure of an RD savings plan varies between 7 days to 10 years.
  • Liquid Mutual Funds- The minimum investment here is ₹ 500, and there is no upper limit. It does not have any restriction on entry or exit loads.
  • Equity Linked Savings scheme- The minimum amount is ₹ 500 via SIP and no limitations on maximum investments. The lock period is e years, but you can continue to invest in this scheme. The investment up to ₹ 1.5 lakhs is tax exempted. However, the long term capital gains (LTCG) over INR 1 lakh is subjected to taxation.
  • Equity Mutual Funds- The minimum lump amount for equity mutual funds is ₹500. The taxation is done based on the holding period.

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Frequently Asked Questions

What is saving plan?

A savings plan is likely to be different for everyone depending on the financial goal, risk profile, returns, and investment horizon. If you are young and want to save for your retirement, ULIPs like Invest 4G or Titanium Plus plan would be the best option. You are likely to create a large corpus by your retirement through market-linked returns if you invest in this savings plan. If capital protection is your aim, then traditional insurance plans such as Guaranteed Money Saving Plan should be suitable for you.

Who should invest in a Savings Plan?

If you are looking for a guaranteed income plan, then saving plans should be on your list of investments that you are planning to make. Savings plan require you to invest a pre-decided amount on a regular basis. People with a regular stream of income who require a lump-sum amount after a period should opt for a savings plan. Working professionals, self-employed people and businessmen should consider a savings plan to meet their long-term financial obligations. Saving plans are also ideal for people who are risk-averse and want to accumulate funds through relatively safer mediums. These saving plans inculcate financial discipline in policyholders which make them crucial for every portfolio.

How much money should you put in savings each month?

The amount that should be invested in a savings plan each month depends on the income, existing financial obligations and the long-term financial goal. If you have a steady income, you should save at least 20% of your monthly income. It is not necessary to invest your entire money into a savings scheme as investments should be diversified. Ideally, you should aim to have a financial buffer of over 10 times of your annual income. Choose an income plan based on your financial circumstances to stay afloat.

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What is the difference between saving and investing?

Saving is the money that you keep aside for emergencies or for buying any big-ticket item. Investing means growing or multiplying the wealth that you have by buying savings plan, or any other assets. Buying a savings plan will help you in achieving your investment goals such as retirement, your child’s higher education or marriage, or for buying a new house.

Which savings plan is best for retirement?

The Invest 4G plan with its multiple investment options and various portfolio management strategies for capital protection is an ideal saving plan for retirement. Also, Guaranteed Income4Life is also another savings plan that you can consider for building your retirement corpus as it acts as a guaranteed income plan that will provide you maturity benefits to manage your post-retirement expenses.

Which savings plan is best for long-term goals?

Smart Goals Plan is a savings plan with its unique features such as modification of the sum assured partial withdrawal and fund switch can help you plan for your long-term financial goals. Canara HSBC Oriental Bank of Commerce Life Insurance offers a wide variety of saving plans that you can invest in as per your risk appetite and investment goal.

Which savings plan is suitable for girl child?

The Future Smart unit-linked plan from Canara HSBC Oriental Bank of Commerce Life Insurance is the ideal savings plan for the girl child. Monthly Income Advantage Plans are also a good option if you are planning to invest in a savings plan for your girl child.

Where should I invest my money?

You should spread your investments across financial instruments. However, having the best savings cum guaranteed income plan in your portfolio is extremely important. Savings plan ensures financial stability and also helps in fulfilling short, medium and long-term monetary goals.

What is a monthly income advantage plan?

A monthly income advantage plan ensures that you lead a stress-free life with your loved ones as it provides a life cover along with giving you guaranteed monthly income. In short, it is a life insurance and income plan that will financially secure commitments made to your loved ones. Canara HSBC Oriental Bank of Commerce Life Insurance Guaranteed Income Advantage Plan is a monthly income advantage plan that provides life cover for the entire term while you pay premium only for a limited period.

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What is a good age to start saving money?

When you plan to invest in a financial product, it always pays well to start early. The earlier you start saving and investing, the better. When you start investing early, the capital gets adequate time multiply. Even a small amount invested for a long time can give substantial returns due to compounding in a savings plan. Invest in an income plan as early as possible to build a significant corpus that will later help you in life. Ensure that you buy the best saving plan in India that can be aligned with your investment goals.

Should you use a savings plan for retirement planning?

Yes. Retirement planning is one of the most important financial decisions of our lives. The best saving plan offers a host of features that may help you build your retirement corpus. Some of the saving plans like Guaranteed Income4Life offer guaranteed returns at policy maturity. Such returns can act as a regular income stream even after your retirement to help you stay financially stable.

Are saving plans beneficial for managing unexpected expenses?

Yes. Best saving plans in India offer partial withdrawal system that can be utilized during your rainy days. Being financially prepared to tackle such odds will help you manage any unforeseen expenses in a smooth manner. Buy a monthly income advantage plan that will generate a steady source of income for you to take care of both long-term and short-term financial goals.

How to save tax by using savings plan?

Saving plans are known for helping us achieve our financial goals. Best saving plans allow you to grow your wealth while providing life cover. Saving and investment plans are also beneficial for tax planning. Premiums of savings cum protection plans come with tax benefit under Section 80C of the Income Tax Act. Moreover, proceeds received upon the death of the policyholder or upon the maturity of the policy are tax free under Section 10 10(D).

What is the right age to start saving money?

When you plan to invest in an income plan, it always pays well to start early. The earlier you start investing in a savings plan, the better. When you start investing early, the appreciation in capital is significant. Even a small amount invested in the best saving scheme for a long time can give substantial returns due to compounding. Buy the best savings plan as soon as you start earning to achieve all your milestones on time.

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How a savings plan can help in building your child’s education fund?

Saving plans help in building wealth over time against the investments that you make. Buy the best savings plan to build an education fund for your child. The best saving plan for kids offered by Canara HSBC Oriental Bank of Commerce Life Insurance eases the stress of planning your child's future by providing a lump-sum payout on the investment. Consider investing in a monthly income advantage plan to assist you in fulfilling your financial goals.

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How Savings Plans by Canara HSBC Oriental Bank of Commerce Life Insurance can help you?

Every person has a unique reason to save and invest. With ULIP savings schemes, the company caters to people seeking wealth creation through capital appreciation. Contrarily, the traditional plans can help you save for important life goals without worrying about the fluctuation in fund value. All major savings plan offers partial withdrawal facility that can help you take care of unplanned contingencies. With savings plans from Canara HSBC Oriental Bank of Commerce Life Insurance, you get adequate flexibility while investing and receiving the savings benefits, which makes them a good investment choice for investors looking for income plans.

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