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How To Choose A Long-Term Saving Plan?

dateKnowledge Centre Team dateFebruary 24, 2021 views231 Views
How To Choose A Long-Term Saving Plan?

Want to save money for a future goal? A long-term savings plan is your savior. It is never too late to save some money, which would help you in unforeseen circumstances in the future. A long-term savings plan is a type of investment where you save your money you do not plan to spend at the moment. Indians have a relatively high savings rate, around 19.68% of GDP, according to national statistics.

As easy as it sounds, saving is not a piece of cake. Gone are the times when putting a 1 rupee coin in a piggy bank was all you had to worry about. A long-term savings plan requires a lot of contemplation to choose a plan which suits your plans and financial conditions the best. Keeping in mind the current conditions, it is important to choose the perfect online savings plan for your family.

7 points to consider while choosing a long-term saving plan

  • Future goals

    Your goals are the pushing factor, which is urging you to invest in money-saving plans. Make a list of all the long-term and short-term financial goals and then, choose a plan which suits your future goals perfectly. For, e.g., if you are saving up for a brand new car, a savings plan with guaranteed returns will be perfect for you. On the other hand, if you are saving for a long-term goal, you will require a plan which will guarantee you the fulfillment of the goal.

  • Available on online platforms

    You will need to check whether the plan you are choosing is available online or not. With its online availability, you also need to check if there are options for online investment, management, and withdrawal. In online savings plans, there are options for auto-debit, which are beneficial for salaried individuals.

  • Aspect of liquidity

    Before choosing among long-term online saving plans, consider your liquidity requirement. The savings plan you choose should provide you with adequate liquidity to satisfy your long-term needs. You should be able to withdraw money from the funds in a time of emergency.

  • Tax exemption

    Make sure to consider plans which provide tax benefits like tax exemption and tax-free maturity value. Tax liabilities can cut-off a part of your return, leaving you with deducted money. Investing in long-term savings plans that enable tax exemption not only saves your tax money but also protects you in times of emergency. Under section 80C of the Income Tax Act, a maximum of Rs. 1.5 lakh can be claimed for tax exemption.

  • Risk & reward factor

    One of the most important factors in a savings & investment plan is the risk and reward factor. Every individual differs in terms of risk appetite, and it is essential to select the best savings plan in India for you, according to your risk appetite. The balance between the rewards and the risk in the plan has to be favorable.

    If you are hunting for a long-term online saving plan, you need to choose a savings plan which gives you guaranteed returns with low levels of risk, just like Canara HSBC Oriental Bank of Commerce Life Insurance's Guaranteed Savings Plan. This plan not only gives you the benefit of guaranteed returns of the intended maturity value but extra loyalty bonuses for investing in the plan for a long period.

  • Reviewing the plan and updating investment portfolio

    The performance of the plan is also a significant feature to examine. Your investment portfolio should be reviewed at least once a year to make necessary changes and locate areas where you can try to get more returns. Also, while reviewing the plan, see if you can diversify and invest in more than one investment product. Diversifying reduces the risk associated with each plan.

  • Flexible terms & conditions

    With investment in a savings plan, terms and conditions are bound to be applied. However, luckily, some savings plans have flexible and compatible terms and conditions. In the flexibility factor, you will have to look for flexibility in investment mode and investment period. Try to find a plan which gives you options in both categories.

    The Online Invest 4G savings plan by Canara HSBC Oriental Bank of Commerce Life Insurance offers all kinds of investment modes. With life cover and wealth boosters, it is one of the best savings plans in India. It is a package of great returns with flexible switch options.

Types of long-term savings plan

Now that you are well-versed with the conditions you have to keep in mind to choose a savings plan, here are the most popular types of long-term saving options, which people in India invest in:

  • Unit Link Insurance Plans (ULIP’s)

    In a ULIP saving plan, the individual gets the benefit of both investment and insurance. You have to pay a premium monthly or annually. A part of this premium is used to cover your costs of insurance, and the other part is used as an investment to the fund of your liking. You get the best of both worlds and a secure long-term plan. There are options for equity, hybrid, and debt funds.

    For example, the Titanium Plus Plan of Canara HSBC Oriental Bank of Commerce Life Insurance is a great example of a ULIP, with the flexibility of premium payment and a safety net of life insurance.

  • Public Provident Funds (PPF) -

    If you are looking for a plan with constant interest at the lowest risks, this is the plan for you. PPF offers tax exemption, making it more considerable. The tenure for a PPF is 15 years and can be extended for five more years.

    You can withdraw funds after five years from the beginning of the plan. It is a post office savings scheme. There is flexibility in this plan in terms of the investment amount. With a small investment, you can acquire great returns in a PPF.

  • National Pension Schemes (NPS) -

    This scheme is a public scheme backed by the Government of India. Individuals between the age of 18-60 can invest in this scheme. The age limit has been extended to a maximum age of 70 years. Through this scheme., you can invest in equities, debts, and other such instruments.

    The final pension you acquire is your return on the investment. In cases of emergencies, this scheme gives you the liberty of withdrawing a partial amount of funds.

  • Equity Linked Savings Scheme (ELSS) -

    ELSS is one of the best mutual funds as it becomes eligible for tax exemption when the investments are under 1.5 lakhs. It is the only scheme that gives you the incentive of tax exemption and guarantees you high returns in the future.

    The only drawback of ELSS is that it entails higher risks than other schemes. Every deposit in a particular account has to follow a strict lock-in period of 36 months, and thus, it is not possible for you to withdraw funds from the account under any circumstances. You will have to wait for the lock-in period to cease.

  • Guaranteed Savings Scheme -

    A guaranteed savings scheme is a safer alternative to ULIP, as it contains less risk with guaranteed returns. You can also claim tax benefits like tax exemption in this scheme. It provides life cover for the entire term, but you pay the premium only for a limited period. You can choose the payment term according to your payment capacity and horizon.

Scheme Duration Rate of Interest* Amount Contributable Taxability of the Returns
ULIP 5 years (minimum) - 20 years (maximum) It is not fixed. Depends upon the ULIP fund performance Minimum- Rs. 2500

Maximum- None
Not taxable
PPF 15 years 7.1% p.a. Minimum- Rs.500 per annum

Maximum- Rs.1.5 lakh
Interest income is tax-exempt.
NPS Until the age of 60 years 5% p.a.to 8% p.a. Minimum- Rs.1,000 per annum

Maximum- No limit
Upon retirement, 60% of the corpus is tax-free. Annuity pension received on balance 40% is taxed at slab rates.
ELSS 3 years Not fixed. Minimum- Rs.100 per annum

Maximum- No limit
Long-term capital gains taxed at 10% + dividends from ELSS is taxed at 10%
Guaranteed Savings Scheme Until the age of 60 NA Minimum- Rs. 1800

Maximum- None
Taxable under section 80C of Income Tax Act.

Table 1. Comparison between different schemes

Saving is the smartest decision one can take in their life. It helps you in all kinds of emergencies and plays a major role in fulfilling your future financial goals. A long-term savings plan increases your annual income, generates income on idle cash, gives you life coverage and other such incentives.

While choosing an online savings plan, it is recommended to compare different plans, be thorough with all the terms and conditions, and then invest. There are a lot of options in the market for money savings plans. However, the tough nut is to choose the right one!

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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

How Do I File Income Tax In India

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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