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When Should One Start Saving And What Is The Best Savings Plan?

dateKnowledge Centre Team dateJanuary 27, 2021 views124 Views
When Should One Start Saving And What Is The Best Savings Plan?

Saving money, or ‘saving habit’ - as Napoleon Hill put in 70 years ago in his book “Think and Grow Rich” - is the keystone of all financial success. Saving money is what delivers the means for you to take advantage of situations -- whether it is starting a new business, going back to college, or buying shares of stock when the market crashes.

Saving money matters.

Although you are committed to saving money, you may find yourself backsliding into the trap of spending an extra Rs 5 here or Rs 10 there, thinking, “It is only a few rupees. I will never miss it”. Counting on your age, this could be a huge mistake.

One of the foundations of saving money is to appreciate the time value of money is the abstraction that Rs 1 today is more valuable than Rs 1 a year from now. This one money-saving tip could help you transfigure your balance sheet over the next ten years as you free up money to put into saving plans.

When should one start saving money?

While there is no lower limit of age to start saving money, young age is the best time to start saving money. Nevertheless, most people of the younger generation are fond of spending money, but a little saving can show great future changes. They often have a false belief that saving money is sacrificing enjoyment. It is not entirely true because sacrificing a little will bring in a great change.

Most of the time, people do not get the significance of saving money at an early age. Here are some points stating the importance of saving money at an early age:

  • If you start to save money at an early age, it assures you a secure old age. At a young age, people do not have many expenses. But with time responsibilities increase, and so do the expenses. Thus it is a better plan to save money at a young age.
  • If you start saving money at mid-age or when you are nearing your retirement, then you will have to work hard and save more as you do not have much time. So, saving at an early age gives you the scope to save less and flexibility to manage other expenses.
  • It is a well-known fact that a practice we start at a young age will last almost lifelong. Thus one who starts saving money at an early age will not stop it, and this practice will help you save money and secure your life financially.
  • Saving money prevents you from borrowing. The money you saved comes to aid during emergencies or children’s education, house requirements, etc. So, instead of opting for loans or financial credit for the support, you can use your saved money and lead a debt-free life.
  • Nowadays switching jobs has become very common. So, if you ever encounter a situation where you have to quit your job or live without a job for a few months. It becomes easy for you to live without a salary in this gap if you have your saved money.
  • One expects to spend their time relaxing leisurely after retirement. So, starting to save money at an early age allows you to save a lot of money for retirement and lead a relaxed and secured life after retiring.

What is the best savings plan?

While there are several savings plans out there, here are the top 6 best savings plans for you. Let us have a clear look at these plans one by one:

1. Fixed Deposit(FD)

Purpose: saving

Interest: 5.5% - 7.5%, guaranteed returns

Minimum investment: Varies from bank to bank

Maximum investment: No limit

For a long time now, fixed deposits have been India’s best savings option. They are bank-based investment products and closely monitored by RBI, assuring safety. They are low-risk investments. You can invest at a particular time and acquire a fixed interest rate that comes with a five-year lock-in period.

Fixed deposits offer a higher interest rate than savings bank accounts and allow only a one-time lump sum deposit. Under section 80C of the income tax act, investments up to INR 1,50,000 are eligible for tax redemption. Also, they offer higher interest rates to senior citizens.

2. Recurring Deposit(RD)

Purpose: Regular savings

Interest: 4.5% - 6.5%, guaranteed returns

Minimum investment: INR 500

Maximum investment: INR 1 Lakh per month

A Recurring deposit is a tenure deposit offered by banks. RDs allow investors to deposit money regularly and avail high returns upon maturity. With RDs, investors get to choose their term period, the amount they wish to deposit, and the number of deposits. Their savings plan period varies between 7 days to 10 years.

RDs allow premature withdrawals with a penalty and can be used as loan collateral. They also offer higher interest rates to senior citizens, but do not allow you to change your monthly investment amount.

3. Public Provident Fund (PPF)

Purpose: Retirement

Interest: 7.10%(April - June 2020), guaranteed returns.

Minimum investment: INR 500

Maximum investment: INR 1,50,000

PPF, one of the most popular savings plans, is a post office savings scheme and is backed by the government. Investors cannot open multiple accounts, but returns from PPFs are completely tax exempted. They allow investors to pay investments in a single deposit or up to 12 deposits per financial year.

PPF gives you a lock-in period of 15 years and is easily transferable from one bank or post office to another. Any Indian citizen can obtain the benefits of this savings plan. Nevertheless, HUFs and NRIs are not eligible.

4. Liquid Mutual Funds

Purpose: Short term savings

Interest: 6.5% - 7.5%(Historical returns)

Minimum investment: INR 500

Maximum investment: No limit

Liquid mutual funds invest in short-term market instruments such as treasury bills, government securities, and call money. They invest in low-risk securities that have maturity up to 91 days. Liquid mutual funds are the best alternative to FDs and savings accounts in which you can invest surplus money for a short time.

In liquid funds, short term capital gains are added to investor’s taxable income, and long term capital gains are subjected to 20% tax with indexation benefits. The risk is lower in liquid funds compared to other debt funds.

5. Equity Linked Savings Scheme(ELSS)

Purpose: Wealth creation through equity

Returns: Market linked (12 -15% historical returns)

Minimum investment: INR 500

Maximum investment: No limit, but can save tax only INR 1.5 Lakhs investment per financial year.

Indian citizens (including non-resident Indians) can invest in ELSS funds. ELSS are equity mutual funds that invest over market capitalization and sectors and have a lock-in period of 3 years.

You can invest in these funds even after a 3-year lock-in without the need to withdraw your investments. You will be charged an expense ratio on the NAV of the fund, and no premature withdrawals are allowed.

6. Equity Mutual Funds

Purpose: Long term wealth creation

Interest/Growth rate: 12% - 15% (Historical returns)

Minimum investment: Lump sum INR 500 - INR 5000; SIP INR 500

Maximum investment: No limit

Equity funds invest in stocks/equities, and each fund has to invest based on the investment objective. You can link your investments to a goal and invest towards it, and the returns are taxed based on the holding period. In this scheme, short term capital gains are taxed at 15%, and long term capital gains are taxed at 10 % and come with exit loads.

These funds are best suited for long-term goal-based investing as they offer significant returns only when invested for the long-term.

Comparison between the top 6 best saving plans in India

Savings plan Lock-in period Returns Tax Eligibility Minimum investment Maximum investment
Fixed Deposit 5 Years 5.5% - 7.5% Returns are taxable Indian individuals, NRIs, HUFs, PIO, OCI Varies from bank to bank No limit
Recurring Deposit 6 months - 10 years 4.5% - 6.5% Returns are taxable Individual, corporate, HUF, NRI, company, government organization ₹ 500 ₹ 1,00,000 per month
Public Provident Fund 15 years 7.10% No tax on returns Only Indian citizens ₹ 500 ₹ 1,50,000
Liquid Mutual Funds No Lock-in 6.5% - 7.5% (Historical returns) Returns are taxable Individual, corporate, NRI, company, government organization ₹ 500 No limit
Equity Linked Savings Scheme(ELSS) 3 Years 12% - 15% (Historical returns) Returns are taxable Indian citizens and NRIs ₹ 500 No limit
Equity Mutual Funds No Lock-in 12% - 15% (Historical returns) Returns are taxable Individual, NRI, HUF, company, corporate, government organization ₹ 500 No limit

Start saving today with the best savings plan of your choice and create a secured life path!

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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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