Saving money is a habit everyone should build early in life. It not only provides financial security but also helps achieve goals (such as education, home ownership, or retirement) with confidence. But saving without a structured plan can be unproductive. A savings plan offered by insurers and financial institutions can be the solution in this case. Such a plan brings a sense of discipline, and in many cases, additional benefits such as insurance or guaranteed returns into your savings portfolio.
If you are wondering who should invest in savings plans, this guide will address your thought, along with the ‘when, why, and how’ of the investment process.
Who Should Invest in a Savings Plan?
The simple answer is ‘everyone’. But to be more specific, here are some people for whom savings plans are especially suitable:
Young Professionals
Starting early has major advantages. With time on their side, young earners can create a sizeable corpus through disciplined, long-term saving. What’s more, savings plans also offer the benefit of compounding, which allows one to reap substantial rewards in the long term.
2. Parents and Guardians
Those planning for their child’s education or future should consider savings plans. Many plans are designed with goal-based benefits that mature when your child is ready for college or marriage (in order to ensure financial readiness for them).
3. Salaried Individuals
Salaried people often have a fixed income and predictable expenses. A savings plan helps them allocate a part of their income on a regular basis toward long-term goals (while still managing everyday needs). It also offers life cover, which can add a new level of financial security.
4. Self-Employed Individuals/Freelancers
Irregular income may make the activity of saving more difficult. However, a savings plan can come to the rescue by offering a fixed framework and encouraging consistent savings. In addition, there are some savings/investing plans which allow you to park your money in a flexible manner, such as mutual funds via Systematic Investment Plans (SIPs).
5. Near-Retirement Investors
Those nearing retirement tend to focus on preserving their capital and gaining a predictable source of income. Guaranteed return savings plans can offer safety and peace of mind in such a case. They can supplement pension income and help manage post-retirement expenses.
6. Risk-Averse Individuals
People who prefer steady growth over market volatility should choose traditional savings plans. These options make it easy to prioritise the safety of your capital over high-but-uncertain profits.
Ultimately, who should invest in savings plans depends on individual goals, income patterns, and financial discipline. But they are suitable for anyone aiming to build wealth in a secure and systematic manner.
How to Choose Which Savings Plan to Invest in
Here’s how to make the right choice amongst the various options available:
1. Know the Reason for Savings
Once you know what you are saving for, you can choose a plan that suits your return expectations, time horizon, risk appetite, and more.
2. Learn About the Various Types of Savings Plans
There are many types of savings plans, including endowment plans, money-back policies, ULIPs, and government schemes, such as PPF or NSC. Some offer guaranteed returns, others offer market-linked growth. Choose on the basis of your risk appetite and financial needs.
3. Compare Savings Plans
After deciding what savings plans are suitable for you, look into critical details - such as minimum premium, tenure, payout options, and lock-in period. Some features of savings plans include life insurance, tax benefits, and withdrawal flexibility. Compare these before making a commitment.
4. Consider Tax Benefits
Many savings plans qualify for tax deductions under Section 80C and offer tax-free maturity under Section 10(10D). These benefits can help you save while reducing taxable income.
5. Compare with Other Financial Products
It is advisable to know your risk tolerance to make the right choice. Should you opt for savings or investing? Investments, such as mutual funds or equity stocks, may offer higher returns but come with market risks. Savings plans, on the other hand, offer stable growth with lower risk. A balanced approach can even include a mix of savings or investing options.
When to Invest in a Savings Plan?
By now, you may be clear on the types of savings plans and how to choose the right one. But you may also be wondering, when is the right time to start saving?
The best time to invest in a savings plan is as early as possible. Starting early gives you the benefit of time, compounding interest, and financial discipline.
Early savings also help in meeting long-term goals without financial strain. For instance, starting a child savings plan when your child is born ensures that you are ready for their higher education expenses 15 to 18 years later. Furthermore, it also teaches your child the importance of saving money and the benefits it can bring.
Starting early also helps in creating a corpus that can beat inflation. If you are wondering how does inflation affect savings and investing, know that it can erode the value of your funds over time. By opting for a savings plan early, you can mitigate the impact of inflation to an extent. The longer your money stays invested, the more it can grow and retain its value with time.
To sum up, savings plans are a smart choice for anyone aiming to build financial stability without taking excessive risk. From young professionals to retirees, everyone can benefit from the various features of savings plans.
** Tax exemptions are as per applicable tax laws from time to time.
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