What makes a good investment option? There can be several factors to measure effectiveness of a savings plan, from its flexibility of investing, pre-withdrawal to the amount of tax exemption it allows. For most investors, if you list down, the following factors influence their investment decision more often than not:
Depending on your goals and needs you can decide which factor holds more significance to you when investment for a long term. Also, remember you cannot have the best of all worlds; every investment will have a few strong factors, while compromising on others. For instance, when you are investing for high liquidity, you might loose on the overall returns.
Unit Linked Investment Plans (ULIPs)
ULIPs are an investment plan offered by life insurance companies, offering a life cover benefit along with an investment option for all categories of investors. ULIPs offer specific benefits which other investments do not:
|ULIPs for Investment|
|Tax efficiency||You can claim tax rebates on premium paid and benefit received during Policy term under Section 80C and Section 10(10D), as per the Income Tax Act, 1961.|
|Liquidity||You can withdraw a part of the invested money, after the lock-in period is over.|
|Risk-return Mix||You can create your mix or invest in individual equity, debt or balanced funds.|
|Investment period||Minimum five years, maximum can go up to 30 years, or even the whole life, upto 99 years.|
Goal protection is a unique advantage available with ULIP plans. This feature not only assists your family on your untimely death but also helps them meet the intended financial goals.
Public Provident Fund (PPF)
PPF is one of the most popular and safe investments for your long-term goals, and one of the only schemes offering tax-free maturity benefit.
|PPF for Investment|
|Tax efficiency||You can claim deduction under section 80C up to Rs. 1.5 lakhs for ULIP investments. Also, the maturity value is tax-free.|
|Liquidity||You can borrow from the accumulated corpus within the first 5 years of the account. After 5 years partial withdrawals are allowed|
|Risk-return Mix||Low-risk investment with a market-linked rate of interest, which is updated every year.|
|Investment period||Minimum 15 years, after that you can extend the account in batches of 5 years.|
National Pension Scheme (NPS)
NPS tier-I account is especially ideal as a retirement plan option. The lock-in period in the account ensures that you continue investing for a long period.
|NPS for Investment|
|Tax efficiency||You can claim deduction under section 80C up to Rs. 1.5 lakhs for own contribution and up to Rs 50,000 for employer’s contribution to your account. Plus, your additional contribution up to Rs 50,000 can be tax-free.|
|At maturity, you can withdraw 60% of the corpus tax-free, while the rest has to be invested in a pension plan.|
|Liquidity – Invest and Withdraw||You can withdraw funds partially from the account but only for specific purposes and emergencies.|
|Risk-return Mix||You can define your mix of equity and debt funds. Your equity allocation can only go up to 50%|
|Investment period||You can start at any age after 18 years and up to 65 years. You need to stay invested until 60 years of age. After that, you can withdraw money entirely or continue until the age of 70.|
Guaranteed Savings Schemes
Guaranteed savings schemes are a safer alternative of ULIP investments; however, they offer fixed returns. The returns are guaranteed based on the investment period and the number of annual contributions.
|Guaranteed Savings Schemes for Investment|
|Tax efficiency||You can claim deduction under section 80C up to Rs. 1.5 lakhs for ULIP investments. Also, the maturity value can be tax-free if you invest only up to 10% of the policy sum assured in a year.|
|Liquidity – Invest and Withdraw||You need to invest for a minimum of 5 years and stay invested for at least 10 years. Partial withdrawals are not allowed. However, you can borrow against the policy.|
|Risk-return Mix||Low. Guaranteed savings are safe investment schemes with no equity allocation.|
|Investment period||Depending on your choice of the premium payment period, maturity period may vary from 10 years to 20 years|
National Savings Certificate (NSC)
NSCs have several features which makes it one of the best schemes to generate endless income from a limited amount of money.
|NSC for Investment|
|Tax efficiency||You can claim deduction under section 80C up to Rs. 1.5 lakhs for ULIP investments. The interest accumulated in the investment is not taxable every year. But at maturity, all the interest is added to your taxable income.|
|Liquidity – Invest and Withdraw||You need to invest for a minimum of five years. Investment is a one-time lump sum investment. So, any new investment will mean a new NSC|
|Risk-return Mix||The scheme is a safe investment with a fixed rate of interest decided every financial year.|
|Investment period||Account matures in five years.|
All of these investments offer one thing or the other which will help you achieve specific financial goals. Most, importantly all of these schemes offer tax savings or tax-free maturity values.
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