Whether you are looking to buy the best saving plan for your new born baby, or you want to leave a legacy for your grandchildren, putting away money in a saving and investment plan is a great way of boosting your wealth. A lot of experts may also recommend you to diversify your investment portfolio. Remember that a balanced investment portfolio must contain a mix of equities, government and corporate bonds, property and cash, saving plans that assure returns.
When searching for a saving plan, we tend to find the best one as per our financial requirements. We consider plans the best when we get sky-high returns as quickly as possible without losing the capital investment. However, when it comes to “High-return and Low risk” saving and investment product, you are not likely to find any such product to invest in. So, rather than considering the best saving plan to be an investment option that gives high return with no risk, you must start searching for plans that guarantees returns.
You may find saving plans that have high risk but they can generate higher inflation-adjusted returns in the long term. To help you find the best saving plan for your investment needs in 2021, we have created this all-inclusive guide. Let us first understand, why do you need to save and invest?
Objectives of Saving and Investment
We generally look forward to buy the best saving plan or any other form of investment in the hope of growing our capital. As an investor, you may want plans that help in generating income to support your financial needs. While some other investors may need a saving plan that helps them in building a retirement corpus for a happy and carefree retirement. The main reason people decide to invest their money may vary according to their personal and financial goals and aspirations. However, the most common objectives when it comes to investments are:
One of the most fundamental reasons for investing money is to preserve capital. Some of the best saving and investment instruments act as a way to park funds and keep them safe. These include government bonds and fixed deposits; the returns may be lower here, but so is the risk.
A lot of investors also put their money to grow while aiming to earn more through it. This is achieved through investment options like mutual funds and commodities. The initial amount to be paid and the associated risk are higher with these options, but so are the returns.
Sometimes, investments are also made to ensure a permanent or long-term source of steady income. For example, you may consider investing in the stocks of a company that pays regular dividends to its investors.
4. Tax Benefits
The Income Tax Act of 1961 offers some tax benefits wherein deductions are made from the payable taxes when investments are made in Public Provident Fund (PPF), Equity Linked Services Scheme and also with savings cum insurance plans.
5. Future Planning
Generally, people prefer investing a part of their money during their active working years towards a retirement scheme or fund. So that once their working years are over, they can continue to be self-reliant. There are some saving plans that work best to build a retirement corpus by generating an additional stream of income.
6. Short-term Financial Goals
Sometimes, people have short-term financial goals that may include buying a car or the downpayment of a home loan. To achieve these goals, people invest in short-term plans or acquire commodities that have a higher chance of value increment resulting in the generation of considerable returns in the short-term. For example, people invest money to buy precious metals like gold and silver.
As now we are clear of the objectives that may lead one to search for the best saving and investment plan, let us understand the types of saving and investment options that are available.
Types of Saving & Investment Options
There are numerous ways in which you can invest your money. One way is through the diversifying your portfolio of assets. It may include investment in precious metals like gold and silver; buying stock in companies, which may or may not pay dividends to their investors; and realty, as land is considered an asset in India.
Learn how to adjust your investment portfolio for post COVID world.
Another way is through set saving plans that are specifically designed to help you as an investor in achieving your desired return value to the extent that it is possible within the bounds of your predetermined risk appetite and spending capacity.
There are two kinds of investment plans: Short-term and Long-term investment plans.
Short-term Investment Plans
These investment options are highly liquid. You can invest your funds for a shorter duration of time. This can be anywhere between 3 months to 3 years. The most common purpose for choosing short-term saving and investment plans are safety of funds and generation of wealth for short-term financial goals.
Some of the best short-term investment plans that can be used for savings are listed below:
1. Debt Mutual Funds
The safest form of mutual and debt funds is investments in debt and money market securities. The risk involved is low, and returns can go up to 10%, making it the ideal option for short-term investment. The tenure of a Debt Mutual Fund investment can be from 90 days to 3 years and can be categorized based on this period into Ultra Short Duration Funds (3 to 6 months), Low Duration Funds (6 to 12 months), and Liquid Funds (up to 91 days).
2. Treasury Securities
A Treasury Bill is a security backed by the government which offers high liquidity. The risk is low, and returns are decent. The tenure of Treasury Securities can be from 91 days to 10 years. However, the amount received as returns will be in proportion with the tenure.
3. National Savings Certificate (NSC)
NSC is a government-backed, tax-saving, short-term scheme that can be purchased from any post office. Tax benefits can be availed for an NSC under Section 80C of the Income Tax Act. If you are planning to buy the best saving plan, you must consider and compare all the available options.
4. Large Cap Mutual Funds
These are low-risk instruments that invest your money per market capitalization. Your money is invested in Large Cap companies for tenure of 3 to 5 years. As these companies function on well-established business plans and strong financial backing, the chances of optimal returns are high, and risks are very low. Therefore, Large Cap Mutual Funds is one of the best short-term saving plans.
5. Recurring Deposits
The investors, in a recurring deposit, can make payments in the form of monthly instalments, contrary to fixed deposits wherein the lump sum is invested. This is another best low-risk option for short-term saving and investment.
6. Post-Office Time Deposits
Post-Office Time Deposits (POTD) is an investment scheme by Indian Post. It is a popular short-term scheme in rural and remote areas, and its tenure can be chosen from options of one year, two years, three years, and five years. It is similar to a Bank Fixed Deposit in many ways.
7. Bank Fixed Deposits
Fixed deposits are also considered to be a form of investment, wherein you deposit a fixed amount with a bank for a fixed amount of time and in return get a set percentage of that amount as interest. Although the returns in this are quite low, so is the risk. The tenure for a fixed deposit with a bank can be from 7 days to 10 years, and the interest rates vary from 3 to 8%.
Long-term Investment Plans
Long-term Investment Plans allow you to invest your funds for a longer period. The risk factors for long term investment plans are usually higher than short-term investment plans, but so are the potential returns. However, these risks can be minimized by conducting proper research before investing. The major long-term plans include:
1. Unit Linked Insurance Plans (ULIPs)
A ULIP is an integrated plan which gives you the benefits of both investment and insurance plans. You can pay the premium on a monthly or annual basis. This is an ideal option for an investor who is looking for a secure earning plan for long-term. When you pay the yearly premium in favour of ULIP, a part of this premium is used to provide the insurance cover while the other is used as an investment to the fund of your choosing. You can choose from Equity, Debt, or Hybrid funds. ULIPs are considered to be one of the best saving plans that offer life cover with an option to grow your wealth.
Learn about these 5 reasons you should invest in ULIPs.
2. National Pension Scheme (NPS)
A government-backed scheme which is open to all individuals belonging to the age group of 18-60 years, however, an extension to 70 is possible for the maximum age. This scheme allows you to invest in different instruments like debt and equity and the final pension amount you get is the returns from these investments. You also have the option of partially withdrawing funds from your account in case of emergencies.
3. Public Provident Fund (PPF)
A great option for investors as it offers tax benefits and steady interest at low risk. PPF is a post office savings scheme, where the returns received by you are given tax exemptions. The tenure for PPF is a minimum of 15 years which can be later extended five years at a time, and partial withdrawals can be made after the initial five years of the plan’s commencement. The minimum investment in a PPF account in a financial year is 1-5 lakhs.
4. Equity Linked Savings Scheme (ELSS)
Considered the best Equity Mutual Funds long-term investment plan is ELSS as these investments when under 1.5 lakhs are eligible for tax exemption under Section 80C. It is the only mutual fund scheme that qualifies for tax-benefits. High returns can be expected from this scheme in the long-term, although the risks involved are comparatively higher than alternative schemes and instruments. There is a strict lock-in period of 36-months, which applies to every deposit in a particular account. Hence, you cannot make a withdrawal under any circumstances until the lock-in period is over.
5. Guaranteed Savings Schemes
Considered by many a more secure alternative to ULIP, Canara HSBC Oriental Bank of Commerce Life Insurance Guaranteed Saving Plans offer fixed and guaranteed returns with low risk. The period for the maturity of these schemes varies from 10 to 20 years. You can also claim tax benefits for investments in Guaranteed Saving Plans under Section 80C. Saving plans that offer guaranteed returns are often considered to be the best by investors.
How to Invest in Saving and Investment Plans?
Who doesn’t want their money to grow! But making smart investments is far more important than the amount of money you might invest. The main things to consider before investing are:
- The tenure of the investment and the time it will take your investment to generate returns along with your needs.
- Your financial goals and to what extent the investment you are opting for can fulfil them.
- The risks that you’re willing to take and can recover from.
- Tax-benefits associated with the saving plan that you are choosing to invest in.
It is also important to conduct your research and educate yourself about the best saving and investment plans and consult with expert financial advisors. At Canara HSBC Oriental Bank of Commerce Life Insurance, we are ever-present to help you plan your future.