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What is a Savings and Investment Plan?


Every individual has dreams and goals that go beyond the bare necessities of life. To fulfil these, one often needs savings that have been accumulated over a period of time. Savings and investment plans help you to save your income in a systematic manner to fulfil various goals.

Savings and investment plans also act as a great means to plan your retirement and to invest in your children’s future.

Why do you need a Savings and Investment Plan?


Whether you wish to send your child abroad for higher education or go for a European holiday in the next 5 years, all your financial goals require you to invest in advance.

Your income is limited while your needs are many. Apart from your basic and immediate needs that you may spend a considerable amount of your income on, you have long term needs that need planning in advance.

It is recommended that before using up your income for monthly consumption, you save for future expenditure first. This often poses a problem as your immediate needs could seem never-ending. That’s why you need to think of wealth building rather than just savings. Investment plans help you utilize your savings and grow them over time for future needs and goals.

Why Should You Buy a Savings and Investment Plan?


Saving for Future Goals

When it comes to fulfilling future goals such as buying a new home, child’s education, retirement planning etc., savings are a must. Without long term savings plans, it is difficult to balance short term needs and future goals. ULIPs help you save systematically and help you plan for these future goals.

Family’s Protection

Family’s Protection

ULIP is a life insurance plus investment plan that offers a life cover to the policyholder. In case of an unfortunate death, the dependant family of the policyholder will still be financially secured.


Tax Benefits

Provides Tax Benefit

All premiums are exempt from tax under Section 80C. The maturity amount received is also exempt subject to conditions under Section 10(10D) of the Income Tax Act, 1961.

High Returns

Good Returns

Unlike other investment plans, ULIP gives you the advantage of switching between funds depending upon their performance. This helps you to get a higher return on your invested amount by monitoring the growth.

Why do you need to save?


Whether you wish to send your child abroad for higher education or go for a European holiday in the next 5 years, all your financial goals require you to invest in advance.

Your income is limited while your needs are many. Apart from your basic and immediate needs that you may spend a considerable amount of your income on, you have long term needs that need planning in advance.

It is recommended that before using up your income for monthly consumption, you save for future expenditure first. This often poses a problem as your immediate needs could seem never-ending. That’s why you need to think of wealth building rather than just savings. Investment plans help you utilize your savings and grow them over time for future needs and goals.

Savings and Investment Plans

Let’s look at the example of Vinay.

Vinay completed his engineering and landed a job in a Pune based IT company at the age of 22 years. The income that he earned in the first year mainly went in paying rent, food, sending money to his family etc. He realised that he is not saving much for his goals and aspirations. To begin with, Vinay wanted to save enough money for the down payment for an apartment in Pune. Since, his initial salary was not a lot and he did not want take big risks with his money, Vinay opted for an endowment plan that would give him guaranteed returns.

In the next 5 years Vinay comfortably saved for the down payment of his home and by taking a home loan, he could afford a 2BHK flat in the neighbourhood of his choice. He brought in his parents to live with him from their hometown and in another year, Vinay got married to Priya.

After his marriage, Vinay’s responsibilities began to increase. He was now responsible for the well-being of his wife along with his parents. He was aware that there would be big expenses in the future like buying a car, family vacations, children’s education etc. He also wanted to ensure that under all circumstances, his wife and their future family are always financially protected. This is what made Vinay invest in a Unit Linked Insurance Plan (ULIP) that gives you a life cover and helps you accumulate wealth.

With time, Vinay started to think about his retirement too. He and his family had a comfortable life due to his steady income but what would happen once he retired? Could he and his family continue to enjoy the lifestyle that they had now? The answer was yes. There were many ULIPs that allowed Vinay to stay invested for as long as 20 years. This meant that by the time he reached retirement age, he would have saved enough and would not have to worry about a financial crisis in his older years.

So basically, what kind of saving and investment plan you choose depends upon whether your needs are short term or long term.

Why you should start investing early in a systematic manner?


Starting early always has its benefits and investment is no exception. The simple logic is that the earlier you start saving the more time your money gets to grow. So, an early start to saving is always a good idea in order to meet your financial goals.

1. Power of compounding :


“Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”

Albert Einstein

What he meant was that if you invest smartly for a long term, you reap the benefits of compounding.

Power of compounding simply means investing your money in order to grow it further. Your wealth accumulation depends upon how long you stay invested.

Here is how you can calculate compounding








2. Risk Appetite

The younger you are the lesser responsibilities or liabilities you have. Historically, it has been recorded that equities perform better than other assets even though they do come with a fair bit of risk. Investors can switch from one particular fund option to another as per the market movements and outlook. Most ULIPs let you make unlimited switches between funds.

3. Patience and Discipline Pays

If you simply save your money in a bank, the tendency to withdraw the money is higher and this does not lead to any growth. But if you remain patient and invest your money, systematically for a long time, it will give you good returns.

Getting into the habit of saving systematically early on helps in easing the stress of financial liabilities when you become older. Being able to start saving early for your future goals gives a very big financial advantage to young professionals these days.

4. Fight Inflation

Investment instrument like a ULIP offers you flexibility to invest in a portfolio of stock which minimizes risks. You can also choose the funds you want to invest in as per your risk appetite. Regular investments over a long period enable you to give time to your money in market, helping you build a larger corpus to achieve your life goals and also stabilizing your funds against market inflation.



What are the different types of Savings & Investment Plans?


Guaranteed Return Plans

As the name suggests, a guaranteed returns plan gives you assured returns on completion of the maturity period. This assurance and predictability of cash flows make your long-term financial plans easier to manage and execute. You can feel secure to have funds when you need them.


What are the benefits of buying a guaranteed returns plan?

Less Risk

Although certain short-term investments may give higher returns, a guaranteed returns plan is comparatively less risky than them. It wouldn’t be wise to trade off returns with liquidity in investment avenues like equity and related instruments. While other investments to market risks, a guaranteed returns plan is subject to no such conditions. Hence, this is a much safer investment for a family.

Risk



Tax Benefit
Tax Benefits

Along with safety and security, choosing a guaranteed returns plan also lets you avail tax benefits. While planning for your taxes, it is advisable to choose instruments that serve two purposes: not only would they help you save tax but would also provide the long-term benefits in terms of savings or protection, in line with your financial plans.




Flexible premiums

A guaranteed returns plan makes provisions for flexible premiums. Based on your income and liquidity levels, choose the amount and mode of premium payments.

Flexible premiums



FLEXIBLE TIME PERIOD
Flexible time period

In your portfolio, a guaranteed returns plan takes the place that you want it to take. It allows you to choose your own maturity period; you can choose for how long you want to pay the premium and maturity period. This allows for every individual buy a plan which is most convenient to him and falls within his financial goals.




Endowment Plans

An endowment plan is a type of life insurance policy which gives you the dual benefit of a life cover and future savings. It enables systematic savings and over a period of time which would help you in getting a lump sum amount on surviving the policy term.

An endowment plan most often gives you guaranteed returns and hence is good for those who do not wish to take higher investment risks. The policyholder gets his/her sum assured on a fixed date in future as per the policy terms and conditions. However, in case of sudden death of the policyholder, the insurance company will pay the sum assured (plus the bonus, if any) to the nominee of the policy. Besides, it is also useful to secure yourself or your family post-retirement or to meet various financial needs such as funding for children's education and/or marriage or buying a house.

Why should you buy an Endowment Plan?


Guaranteed Returns

Endowment policies offer low returns available with low risk. It offers the dual benefit of death cover and savings feature. These policies offer upfront guaranteed returns and they are not linked to the market’s performance. The guaranteed returns such as guaranteed additions remain fixed and are payable on death or maturity (as applicable).

Guaranteed Returns



Bonus
Bonus

The insurance company usually declares bonuses, depending on how the investments have performed. When an insurance company makes profits from its investments, it distributes a part to its policyholders at the end of each financial year. The profits or surplus of a life insurance company is determined after the valuation of its assets and liabilities.

Under an endowment policy, Simple Reversionary Bonus and Terminal Bonus are added to the sum assured and payable on death or maturity under the policy. Simple Reversionary Bonus is declared annually and accrued to be payable on death or maturity claim. Terminal Bonus a type of loyalty bonus and is paid only at the time of maturity of the policy.




Long-Term Financial Planning

An endowment policy yields high returns when you maintain it for a long term. When you buy an insurance endowment plan, the benefits are payable, only in case of death or maturity claim. Surrendering the policy is not advisable, as it provides you meagre returns. You are required to choose a policy term that helps you to achieve savings and fulfil your financial objectives.

LONG-TERM FINANCIAL PLANNING



PREMIUMS BENEFITS
Premiums Benefits

With endowment policies, a portion of the premium amount goes towards the mortality component and the remaining amount of the premium is invested to earn returns. Under this policy, you can avail death or maturity benefit as a lump sum of sum assured plus accrued bonuses and/or guaranteed additions, as applicable under the policy chosen. This policy ensures financial cover for your family plus builds a corpus till the maturity of the policy. It is a 360- degree financial plan that provides you & your family a complete financial cover.




UNIT LINKED INSURANCE PLANS (ULIPS)

A ULIP is a life insurance plan with an additional feature of investing your money in the market for future financial goals. This means that you get the dual benefit of protecting your family as well as securing your own future.

A ULIP also provides tax benefits as the premium or amount invested into the ULIP is exempted from tax under Section 80C. The amount received on maturity of this investment plan, is also tax exempted under Section 10(10D) of the Income Tax Act, 1961

Benefits of Investing in a Savings Plan


  • Flexibility:
    ULIPs let you choose the premium amount, as per your requirements. They also give you the option of selecting funds as per your choice. Many ULIPs also offer the possibility of increasing your premiums during your premium paying term. One can opt for a particular plan based on their financial goals and risk appetite.
  • Liquidity:
    No matter what your premium paying term or policy term is, after the lock-in period of 5 years, you can fully or partially withdraw funds from your account when you are in need of urgent funds.
  • Systematic Savings:
    ULIPs give you the benefit of putting aside a chunk of your income and save it for future use.
  • Wealth Accumulation:
    ULIPs not only let you save your earnings, but also help in growing wealth by allocating it to market-linked funds.
  • Tax Benefit u/s 80c:
    Premiums paid are deductible from taxable income under Section 80C. The maturity amount received is also exempt subject to conditions under Section 10(10D) of the Income Tax Act, 1961.

Steps to Buy a Savings and Investment Plan Online

Step1 >> Choose your plan





Step2 >> Choose your premium and policy term


Step3 >> Make Payment

You can opt from monthly, half-yearly or yearly mode of payment and choose from a list of payment options such as:

  • Credit Card
  • Debit Card
  • Netbanking
  • Online Wallets

How Can You Save Tax by Investing in a Savings Plan?


All premiums are deductible from taxable income under Section 80C. The maturity amount received is also exempt subject to conditions under Section 10(10D) of the Income Tax Act, 1961.

Tax Exemption under Section 80C on Premium Paid:
The premium paid in a financial year is eligible for deduction under section 80C of the Income Tax Act. An individual or a HUF can claim this deduction under Section 80C.
The premium paid by a tax payer is eligible for deduction irrespective of which Life Insurer you choose. Premium paid towards a life cover taken with any insurer that is approved by the Insurance Regulatory and Development Authority of India (IRDAI), is eligible for a Section 80C deduction.
In order to claim deduction under section 80C, the premium paid should not exceed 10% of the sum assured. Further, here it is important to note that covering the life of an individual with a disability referred to under Section 80U or a disease referred to under Section 80DDB, the requirement to claim the deduction under Section 80C is that the premium should not exceed 15% of the sum assured.



Save Tax by Investing

Tax Exemption under section 10(10D) on Maturity amount received
The maturity amount in a ULIP is fully exempt from Income Tax under Section 10(10D).
When the premium paid is more than 10% of the sum assured for policy issued after 1st April 2012 or more than 20% for policies issued prior to 1 April 2012, the maturity amount received from life insurance policy is fully taxable.


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Frequently Asked Questions



  • What affects the growth percentage of my funds in an investment plan?

    As the funds in an investment plan like a ULIP are linked with the share market, their performance is directly affected by the very market. The performance of any ULIP is hence market-driven.

  • How do I make the most out of the funds in a ULIP?
  • What are the types of funds you offer in your savings plan?
  • How can I see the performance of my funds in a savings plan?
  • When will my money invested in a savings plan start profiting?
  • Are ULIPs safe as an investment plan?
  • Are investment plans like endowment plans safe?
  • Is a term plan better than a ULIP?
  • What’s the difference between a ULIP and an endowment plan?
  • What’s the difference between mutual funds and ULIPs?
  • Is the return in Edelweiss Tokio Life – GCAP guaranteed?
  • Do I get any tax benefit?
  • Do I get death benefit?
  • Do I get additional benefit on my returns?

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