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6 Factors to consider while opting for a savings plan

dateKnowledge Centre Team dateMarch 02, 2021 views221 Views
6 Factors to consider while opting for a savings plan

Saving is the most basic habit that a person is taught by his/her parents right from an early age. In order to accomplish all the long-term and short-term goals, it is extremely imperative to open and invest in the best saving plan.

People usually put a small part of their earnings in a savings plan regularly that can help them in securing their future and that of their loved ones. A savings plan is undoubtedly considered the most suitable investment option in India, and many people opt for these plans to accomplish their goals. Selecting the right saving plan can help you grow your finances significantly over time.

What is basically a savings plan?

A savings plan is generally a kind of life insurance scheme in which the person can gather and save funds in a most well-organized manner that they can use for fulfilling all their short-term and long-term life goals. There are numerous features offered by these savings plans that can assist in meeting the explicit monetary requirement of a person by investing that fund as per their risk-taking capacity and suitability. This savings plan further extends the benefit of insurance coverage, along with the advantage of capital accumulation.

Apart from this, if the person who took the savings plan, unfortunately, dies during the tenure of the policy, the nominees will receive a mortality benefit under the chosen saving plan. Savings plans are either administered by the Government of India, financial institutions, or public sector banks. The principal benefit of the savings plan is that they are owned by the Indian Government and provide utmost security and protection to your invested fund. Furthermore, these savings plans are financial instruments that carry low-risk along with sound returns.

6 Essential factors to consider while investing in saving plans

Proper financial planning is essential to deal with the contingencies and lead a stress-free life. The most dependable way to assure a financially guarded tomorrow is to begin saving regularly from a tender age. By investing your funds in a savings plan, a person can make a secured financial bubble for their future along with receiving numerous tax advantages. However, there are some factors that you must keep in mind while opting for the best saving plan for you and your family.

1. Risk capacity and profile

To find and choose the best saving plan, you must first decide your risk-taking capacity. Personal inclinations and age are the two most important components that can determine the amount of risk that a person can bear. Usually, people who are young and in their 20s and 30s can choose investment options that hold a significant amount of risk and that offer a higher rate of return. They can opt for more competitive options like investing more money in equity or the share market than in debt markets.

For those looking for plans that involve greater risk and provide greater rewards, investing their funds in a Unit Linked Insurance Plan (ULIP) is a smart choice. On the contrary, a conventional investment or a money-back saving plan is extremely suitable for the requirements of the investors who are not willing to take a great amount of risk. These saving plans with moderate risk guarantees return to investors, but at a lower rate of return.

2. Investment duration

Yet another essential factor to keep in mind while choosing the best saving policy is the duration for which the amount is invested. There are numerous saving plans that provide investors with a long to medium-term investment horizon and further works as tax-saving investment alternatives. Some of them can assist you in increasing your funds in the course of your policy.

You can start your investments with a small amount and then build your corpus over time. Investing a small amount in saving plans is possible as most financial institutions understand that the earnings and savings of the person keep on fluctuating depending upon the age of the person and hence, offer them the alternative when they can enhance or diminish the amount to be invested.

3. Ultimate goals

Before choosing the most suitable saving plan, you must be clear about the purpose of choosing a savings plan. When you know your ultimate goal, you can easily determine alternatives for tax saving investments. These goals can vary from creating a corpus for your retirement or holding adequate funds for your child's higher education or their wedding to maybe constructing a home.

4. Savings plan highlights

Different savings plans hold distinct highlights. The most suitable and tax-saving investment plans enable you to withdraw the partial amount after some time by giving up on a certain portion of the policy while retaining the other half with added benefits. On the other hand, some savings plans hold a fixed tenure that ranges from 5 to 10 years or maybe 30 to 35 years.

With flexible alternatives and extensive coverage, you can choose the best saving scheme that can provide you with protection along with savings. Hence, it becomes important to look at all the highlights and features of a saving plan before making a selection.

5. The flexibility of a savings plan

For fulfillment of all your long term goals, you must choose a savings plan that is flexible. Doing so enables you to take care of your unforeseen short-term requirements. They further extend the flexibility of abdicating the policy if the circumstance requires you to do so.

However, it is more suitable to hold on to the tax-saving investment savings plan for a prolonged duration to receive a better rate of return at maturity.

6. Prices of the saving plans

Another and most important fact that you must keep in mind while opting for a savings plan is its price. You must accurately comprehend the charges and prices associated when picking the best saving plan for you.

The most suitable savings plans hold minimal charges and render flexibility in terms of funds withdrawal, the term of the plan, and the receipt of interest. Furthermore, the long-term impact of these prices is much less, making it a transcendent approach to enhance wealth at a moderate price.

Advantages of choosing saving plans

Saving plans are the most favored investment alternative for people who wish to invest their hard-earned money in risk-free options that are future-centered. Aside from this, there are several advantages of a savings plan that are mentioned below:

  • Financial coverage and regular payouts

    As savings plans are schemes that fall under the scope of life insurance, they render much required financial coverage to your family and your loved ones in case of your unfortunate demise.

    Apart from the financial coverage, these saving plans also render you with regular payouts that can further assist in protecting your family and loved ones financially in a more comprehensive manner.

  • Boosts financial routine

    Another importance of saving plans is that with these, you become more aware of your financial routine as these savings plans inculcate regular saving habits in you.

    With the help of these savings plans, you can regularly invest and accumulate funds that will further aid in securing your future, making them a great teacher in terms of financial discipline and investment.

  • Increases flexibility

    The life goals and priorities of every person are different and unique. Saving plans are designed to take into considerations and cater to all such life goals and different requirements that people hold. A savings plan can be tailored as per your needs and requirements, and apart from this, they also hold different beneficial features.

    They offer alternatives in funds and additional investment criteria along with the alternatives in payouts and the payment term. Furthermore, a person can turn around with their selection of investments as and when the risk capacity and capital requirement changes.

  • Renders tax benefits

    As saving plans are basically life insurance plans, they extend similar tax advantages that are administered by other insurance plans. A person can receive tax advantage under Section 80C of the Income Tax Act, 1961 and receive a tax exemption on premium for an amount up to Rs 1.5 lakhs.

Savings plans are regarded as one of the most suitable investment plans in India. It is essential for you to examine and analyze your requirements and goals before choosing a savings plan. You must also contemplate your risk-taking capacity before finalizing your investment option. You should consider all the features and specifications of the policy and then choose the best saving plan that matches your requirements most suitably. It is never too late to invest your money in a saving plan. All you need is a profitable and secured savings plan.

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Tax Saving FAQs

How saving at an early stage of life will help you during retirement?

Retirement appears so far away when you're in your early age of life that it barely seems essential at all. It's actually among the most popular excuses individuals make to support not saving for retirement

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Filing Income Tax Return (ITR) is a mandatory exercise for all taxpayers, through which they report their gross taxable income in a particular financial year, claim tax deductions, and declare net tax liability to the Income Tax Department.

What is TCS tax in India

TCS or Tax Collected at Source is a tax levied by the government of India. TCS is payable by the seller who collects the tax, in turn, from the buyers at the time of sale of goods

What is the procedure to calculate the capital gain tax in India

Capital gains are described as the profits that you accrue or receive through the sale of capital assets. When you sell any capital asset for an amount, more than you paid for it, your sale accrues capital gains.

How can I save my taxes legally?

In India, maximizing tax savings is an integral part of financial planning. While you may include different financial instruments in your portfolio

How can one get a full refund of income tax in India?

In India, getting a full refund of income tax is only possible when the tax is deducted at the source, or you have paid advance tax, and the refunded amount is below the taxable limit.

How is income from other sources taxed in India?

The Income Tax Act 1961 lists ‘Income from Other Sources’ as one of the five heads of incomes, subject to taxation.

How is the tax calculated?

In India, calculation of the total tax liability, i.e. income tax payable is an essential activity for all taxpayers.

How much tax can I save?

In India, the calculation of tax liability is based upon different income tax rate slabs. In other words, the amount of tax you have to pay or can save depends upon your overall taxable income and the tax category in which your income falls into.

What are the provisions of advance tax in India?

In India, advance tax refers to the activity of paying a portion of your taxes before the financial year ends.

What is Dual GST (Goods and Services Tax) in India?

The Dual GST structure in India is essentially a simple tax with different taxation rates – the Central Goods and Service Tax (or CGST) and the State Goods and Service Tax (or SGST).

How can I save taxes on my FY 2019 - 2020 income?

For FY 2019-20, both salaried and self-employed individuals can minimize their tax income liability through efficient financial planning.

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