Savings and Investment Plans in India

Financial planning is essential as you may need funds at various stages of life. If you plan your journey well, you can easily manage important events in your life. You should look for the best investment options that can grow money while you focus on other aspects of life. Online savings plans are one of the best options for building wealth over time. However, mere planning is not enough; you need to allocate your money into various savings and investment plans to achieve your planned goals.

Before you buy any savings and investment plan, you must do a thorough research and understand the associated risks and benefits.

Low Risk Savings and Investment Plan:

If you are an investor with a low-risk appetite, you can choose a savings and investment plan with low or no volatility. These investment options are reliable and give you stable growth with minimum risk involved. Most of the low-risk savings and investment plans have a long lock-in period.

Below are some of the low-risk investment plans:

1. National Pension Scheme: NPS is a government-sponsored pension scheme initially designed for government employees. Now it is available for employees of other private and unorganised sectors. You invest small amounts at regular intervals in this savings and investment scheme. At retirement, you can withdraw a percentage (up to 80 per cent) of your corpus. The remaining comes to you as a monthly pension. The scheme lets you invest in different funds like debt funds, government funds, equity, etc.
   

2. Senior Citizen Saving Scheme: The Senior Citizen Saving Scheme is one of the best investment plans for a retired person. The scheme is designed for senior citizens and can be availed from banks or post offices by anyone over 60 years of age. The tenure of this investment plan is 5years and can be extended up to 3 years on maturity.
   The maximum amount you can invest in the scheme is ₹15 lakh. The interest is paid to you quarterly, and it is taxable. The interest rate change is revised every 3 to 6 months. The rate at which you buy the policy will remain the same during the tenure of your policy, even if the rate changes happen later. Senior citizens can claim a tax deduction of up to ₹50,000 under Section 80TTB on the earned interest from the scheme.
   

3. Public Provident Fund (PPF): This is another popular investment plan for investors with a low-risk appetite. The plan comes with a lock-in of 15 years. Premature withdrawal is allowed only in case of emergencies. The interest is calculated every month, and it gets added to the PPF account at the end of the financial year. The minimum investment required is ₹500 annually, while the maximum you can invest in PPF is ₹1.5 lakh in a financial year. The principal amount, the maturity amount, and the interest earned are exempted from tax. You can be eligible to take a loan against your Public Provident Fund account.
   

4. Money-Back Plan: The plan combines investment and insurance and gives you assured returns periodically. The tenure of this savings plan varies, and you have the choice to decide the term. In general, the policy term is 20 years. With a Money Back Plan, you receive a percentage of your sum assured every 5 years, and you get the balance amount along with bonuses (if any) on maturity. In case of the demise of the policyholder, the nominee receives the sum assured.
   

5. Sukanya Samriddhi Yojana: SSY is a popular child investment plan to secure the financial future of a girl child. It is a government-backed investment plan that gives you safe and guaranteed returns. The plan duration is 21 years or until the marriage of the girl child after 18 years of age. The investment you make in the scheme is eligible for a tax deduction. The interest earned and the maturity amount are exempt from taxation.
   

6. RBI Saving Bonds: These were introduced on 1 July 2020, and you can invest a minimum of ₹1000 in these bonds. There is no upper limit for investment. The tenure of these bonds is7 years and offers you an interest rate of 7.15% (effective from 1 January 2021, subject to change). The interest you receive from the bonds is taxed according to your income tax slab.
   

7. Fixed Deposits: It is an investment plan in which the interest rate remains the same throughout the investment period. Therefore, you have a clear idea of how much you are going to receive at maturity. There is great flexibility when it comes to tenure. You can open a fixed deposit account anywhere between 7 days and 10 years. The interest received gets added to your total income and is taxable as per your tax slab.

Medium Risk Savings and Investment Plan:

Moderate-risk savings and investment plans offer you balanced and diversified investment options. In such plans, your investment goes to a bucket that has both debt and equity.

Examples of medium-risk savings and investment plans are:

• Monthly Income Plans (MIPs): Monthly income plans offer monthly income out of your investment, which can be in either of the following two ways:
  • Interest/dividend payment every month
  • Payment of the invested amount every month (annuity plans)

Some of these plans, like MIP mutual funds, also invest in equity stocks.

• Arbitrage Funds: Arbitrage funds are a special type of mutual fund that benefits from market imbalances. Since the positions are opposite to each other, these funds carry little risk in any market situation. However, since the underlying investment isvolatile, like commodities or equity stocks, these funds carry a higher risk than fixed-income debt funds.

• Corporate Bond Funds: These funds invest predominantly in corporate fixed-income issues, like bonds and convertible debentures. Since the range of ratings of the instruments varies a lot, these funds carry a higher risk than other debt funds investing in more secure debt.

High Risk Savings and Investment Plan:

1. Unit Linked Insurance Plan (ULIP): It is a combination of investment and insurance. A part of your premium goes to insurance, and the balance is invested in the market. With most ULIPs, you have the option to choose whether you want your investment to go to equity, debt, bonds, or hybrid funds. As a survival benefit, you get the maturity amount depending on your Net Asset Value (NAV). In case the policyholder passes away, the nominee receives the sum assured.
   
   New ULIP plans give you more flexibility in terms of investment options and are also cheaper.

2. Equity & Balanced Mutual Funds: A mutual fund is an investment plan in which your money or investment is managed by a professional called an Asset Management Company (AMC). There are different types of mutual funds depending on the fund type. The different instruments in which mutual funds invest include debt, equity, bonds, etc. Depending on your risk appetite, you can choose a mutual fund scheme. When you invest in a mutual fund, you are allocated NAV, and your investment grows as the price of NAV increases.

Here’s a comparison between saving schemes and investment plans based on key financial aspects:
 

Choosing between a savings plan and an investment plan ultimately depends on your financial goals, time horizon, and risk appetite. A balanced approach, where you allocate funds to both safe savings and high-return investments, can help maximise wealth while maintaining financial security.

You receive many benefits when you buy an investment plan. Some of the benefits are:

1. Wealth Creation: As an investor, you have the option to choose the type of investment you want to make, depending on the risk you want to take and the returns you want. Most investment plans are long-term plans that offer good returns and, hence, help you create wealth over time.
2. Financial Security: A savings and investment plan gives you returns as well as life cover. With the life cover option, you secure the future of your loved ones even if an unfortunate event happens.
3. Goal-Based Planning: Investment plans help you invest for your long-term goals, like a child's education, creating a retirement fund, etc. You can buy an investment plan for each of your goals and start investing regularly, as per your comfort.
4. Retirement Saving: Retirement funds are not created overnight. You can invest in high-risk funds in the initial years of your investment and get high returns, then move to low-risk investments. Investment plans are an ideal option for creating your retirement fund over time.
5. Tax Benefit: Investment plans also give you the option to save on taxes. The premium paid towards investment plans is eligible for a tax deduction.

A savings and investment plan for children is more than just a product; it is a way to secure their future needs while building financial discipline over time.

• Secures the future of the child with a life cover. In case of an unfortunate event, the sum assured ensures the family has a fund for the child's higher education.

• Premium protection option ensures that all the necessary investment is made, even when you are not there to fulfil the goal.

• The premium paid towards a child investment plan is eligible for annual tax deduction up to a limit of ₹1.5 lakh under Section 80C of the Income Tax Act.

You can buy a savings and investment plan in India if you meet the following conditions:

• The starting age for investment plans may vary from 0 to 18 years, depending on the type of plan

• Maximum entry age also varies for different savings and investment plans, starting from 45 years to 65 years

• Maximum age at maturity may depend on the type and purpose of the plan. For example, a pension plan may last up to 100 years of age, while a PPF investment may continue only up to 85 years of age.

• You should be in a financially sound condition to invest in life insurance plans.

You need to have the following documents for buying the best savings and investment plan:

• Age proof document like a passport, a voting card, etc

• Identity proof like Aadhar, PAN Card, etc

• Address proof like a driving license, a passport, a voting card, etc

• Income proof like a bank statement, salary slip, etc

The best investment plans help you invest your money in various money market instruments in a systematic way so you can achieve your financial goals.

Follow the steps below to buy the top investment plan in India:

• Know your financial goals and your requirements

• Figure out the tenure of all your goals

• Evaluate how much you can invest in a savings plan and see if the sum assured and life cover match your requirements

• Shortlist the savings plans matching your investment goals and tenure. Check that the investment plan does not have high commissions.

• You can buy a single investment plan for all your goals or one plan for each goal, depending on what you are comfortable doing. If you decide to buy a single investment plan, ensure it is diversified to reduce your risk. If you decide to buy multiple investment plans, create a diversified portfolio of investment plans.

• Review your investment plan once or twice a year and see if it is performing as expected