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13 Factors to consider while buying a monthly investment plan

dateKnowledge Centre Team dateFebruary 18, 2021 views183 Views
14 Factors to consider while buying a monthly investment plan

As expenses increases with the quality of living, the rising demand for dependable saving plans is inevitable. With a variety of savings and investment plans, it's natural to feel confused. At Canara HSBC Oriental Bank of Commerce Life Insurance, you can choose from a wide range of monthly investment plans. You must buy the best savings plan as it is important for your long term as well as short term financial goals. However, there are certain factors that you must consider to find the best saving and investment plan to align with your risk appetite.

13 factors that affect your choice of saving plans

Investing monthly in suitable saving plans is beneficial in the long run. Doing so will give you a financial safety net in the future while making you financially disciplined. As mentioned before, choices are plenty when it comes to saving plans, but your choice should depend on certain criteria. Given below are some of the important factors to consider while opting for a monthly saving plan.

1. Set your goals

Before even looking at your options, you should make a credible list of your short-term financial goals. Keeping a list will make your goals more clearly defined, and that will help you to choose a monthly saving and investment plan with more clarity. Ask yourself these questions,

1) Why are you investing, and for what?
2) What kind of risks can you take?

Take your time to answer these questions and use them to set your goals. Your goals will then help you to choose a savings plan best suitable for your needs.

2. Find a balance between risk and reward

For this, ask yourselves the question, what kind of risks can you take? You have to answer honestly, and the answer should cover every aspect of the reasons behind your investment venture. While answering, make sure to point down the risks and the rewards, the pros, and cons. Look at the results and weigh the pros and cons.

The investment won't be manageable if the risks are too high, and you have to sacrifice product quality to keep the rewards high. This is why you should balance the two while searching for the best savings plan.

Create an idea or choose a life insurance plan where risks and rewards exist in harmony and then invest in a savings plan that benefits from and keeps the harmony.

3. Liquidity

Liquidity refers to the ease with each asset, or security can be converted into ready cash without affecting its market price. In simple words, liquidity describes the degree to which an asset can be quickly bought or sold in the market at a price reflecting its intrinsic value.

As we know, cash is considered the most liquid of assets because it can quickly and easily be converted into other assets. That is why your saving schemes should have adequate liquidity to satisfy your needs. You need to make sure that the investment plan will provide funds in an emergency. Therefore, consider your liquidity requirement if you want to choose the best savings plan.

4. Understand the tax reductions offered

When you invest in saving plan, consider the tax benefit offered by the plan. Various policies like life insurance and health insurance offer a tax benefit. Investing in such products would help you when you're in need of funds or when you need financial assistance in the event of a medical emergency. Even saving plans offer tax benefits under Section 80C of the Income Tax Act.

Discuss with your investor and find out, in detail, about the products and the benefits you get from a plan. Choose a saving plan with the best benefit and which would cater to your needs.

5. Check out the history

As stated above, discuss with your investor about the different types of monthly investment plans available for you. Also, check and review the life insurance company to find out their credibility and reliability.

Do the research on your own; ask friends, family, relatives about the preferred plan, get advice. You should also find out the history and customer reviews of all the saving plans available. Compare the plans with each other; a comparison will tell you how strong or weak a particular monthly investment plan is.

Choose the saving and investment plan that the majority of customers preferred and with the most number of good reviews. Don't downgrade yourself into choosing the less preferred option; choose saving plans with the most benefits.

6. Check the features of the savings plan

Your monthly investment plan should not be restricted. It should not be restricted to having only one investment product.

Discuss and ask for a saving plan with the maximum number of investment products. You will have to diversify the investment plan to reduce the risk associated with the same. Check out customer reviews, ask for advice, compare the saving plans and choose the one with the investment products that you think will be beneficial. Consider all the available options, which serve your purpose and diversify the plan along with your investment portfolio.

7. The plan should suit your current lifestyle

With the rise in the price of commodities, livelihood is becoming expensive. Without a best savings plan, you could easily find yourself in situations where you have availed for loans.

Take your livelihood, your lifestyle, and your monthly income into account while searching for the best savings plan. Make sure whatever amount you invest in is the minimum requirement in your household. As usual, don't be afraid to ask for advice. Have a tracker about how much monthly expense you have and how can you reduce it to invest in a monthly investment plan. Choose a saving plan that takes into account your livelihood.

8. Performance of the saving plan

Review your investment portfolio as frequently as possible. Make sure you are up to date on all changes that affected your plan.

Discuss with your investor to check if the changes are beneficial to you or not. Check out the history and the customer reviews of the same. Make sure to ask the right questions. Once you make an investment, it's important to be updated on it every day, if necessary. Review your investment portfolio and take necessary actions to maximize your profit.

9. Create and maintain an emergency fund

Most smart investors put enough money in emergency saving schemes to cover an emergency like sudden unemployment. Make sure you have saved up your income for a particular amount of time so that you won't be caught in an uncomfortable situation.

10. Pay off high-interest credit card debt

If you have any ongoing debts, for example, credit cards, or any other loans – pay them off as soon as possible. Because they are high-interest debts and the more time you take to pay them, the more interest you have to pay.

11. Take advantage of "free money" from the employer

In most employer-sponsored retirement plans, the employer will match most of what you contribute. If your employer provides a retirement plan and you don't add anything from your end to get your employer's maximum match, you are passing up "free money" for your retirement savings.

12. Avoid circumstances that can lead to fraud

These days scams are more prevalent, and people often fall for such traps. Scammers use highly publicized news to lure people into making a bad investment by making their offer sound legit.

However, asking the right questions can prevent you from falling for it. If you are considering saving plans from a non-banking entity, it is best to do some research on finding the best saving plan and the provider.

13. Terms and conditions

Ask all the necessary questions regarding the terms and conditions of your savings plan. If you have any questions or doubts, you can either directly ask the life insurance company or you can discuss with your financial advisor.

Saving and investment plans can be complicated as there are various terms and conditions associated with them. Therefore, buy the best savings plan only when you're satisfied that it will meet your needs and demands. Clear all your doubts before you put your money into it.

Make sure you have goals and ambitions straightened out. Do ample research about the topic and learn everything you can about the saving plans you have been offered. Choose a savings plan that is well suited to your needs, ambitions, livelihood, and future. Keep these factors in check and choose wisely.

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FAQs Related to Tax Saving

First of all, your gross total income is taken into account and all applicable deductions/exemptions are deducted out of it, the resultant amount is the net income, upon which the Income Tax is calculated, on the basis of income tax slabs that are announced each year in the Union Budget.

How much tax you can save depends on your financial portfolio and profile. The most common avenue for tax-saving is Section 80C, which allows you deductions up to Rs 1.5 lakh in your taxable income. The implication is that you can save up to Rs 46,800*in taxes in a year, depending upon the income tax slab you belong to. Similarly, other avenues like interest on loans, health insurance etc also provide deductions capped at a certain amount.

*Tax saving of Rs.46,800/- is calculated at the highest tax slab of 31.2% (including 4% Cess) for an individual assessee on life insurance premium of Rs.1.5 lakh, who is having taxable income upto Rs.50 lakhs.

You can choose from many investments that are tax-exempt: not an exhaustive list, but includes Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), life insurance plans, Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi Yojana, Senior citizens Savings scheme, National Pension Scheme (NPS), tax-saving bank FDs.

First of all, make investment of Rs 1.5 lakh in investments instruments covered under Sections 80C to reduce your taxable income. Claim deductions for the interests paid on home loan and/or education loan if any. Get a health insurance policy and claim for other medical expenditure like preventive medical healthcare check-up, expenditure on rehabilitation of handicapped dependent relative, among others. Mainly, the idea should be finding out which tax saving avenues fit well with your larger financial goals and invest in them!

The maximum limit of investment that will reap the benefits of deduction from taxable income under Section 80C is Rs 1.5 lakh.

There is no limit to the number of tax-exempt investments one can have in a financial portfolio. However, it is important to note that there is a limit to how useful any instrument can be for the purpose. This is because the amount of deduction that can be claimed for specific instruments is capped at a maximum value. At the same time, keep your financial portfolio balanced so that it also provides safety, returns and liquidity.

First of all, make use of the Rs 1.5 lakh deduction allowed under Section 80C. This can be done by making investments in life insurance premium, Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi Yojana, Senior citizens Savings scheme, National Pension Scheme (NPS), among others.

Second, make use of the deductions available in respect of health insurance and other medical expenses. Under Section 80D of the Income Tax Act, 1961, a deduction of up to Rs 25,000 is allowed in a year in terms of the premium paid towards a health insurance policy of Self and your family i.e., Spouse and children. This can include preventive healthcare check-ups too upto Rs 5000/-. Under section 80D you can also claim additional deduction upto Rs. 25000/- (Rs. 50000 in case of senior Citizen) for health insurance of your parents.

Apart from Section 80C, various deductions and exemptions has been provided under the provision of Income Tax Act, 1961 like deduction under section 80D can be claimed for the payment of health insurance, deduction upto Rs 50,000 on home loan interest under Section 80EE. Any donations you make to charitable institutions are also allowed as deduction under Section 80G, subject to condition prescribed therein.

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