Investment-Plans
While talking about investment plans and the world of investing, three words come to mind - intimidating, overwhelming, and scary. For a 'regular Joe' this question seems perpetual.
One of the Founding Fathers, Benjamin Franklin quoted, "An investment in knowledge pays the best interest." Here he means that when it comes to investing; always educate yourself to earn better returns. This means, being an investor, one must do all the necessary research, analysis, and study before s/he coming to any investment decision.
For different stages of life one needs funds. One has to build the financial corpus - be it child′s marriage or education, or his/her retirement savings. While seeking different ways to build this financial corpus, one often tends to look out better investment plans and higher returns from them. Due to a number of investment options, there′s no simple and easy solution to it. However, the ease of different investment plans offered by various life insurance providers is one of the reasonable options available.
What is an Investment Plan?
An investment plan is a financial product that provides the opportunity to create wealth for the future. Life Insurance products are often used as investment instruments. The advantage of investing through a life insurance plan is that it not only allows you to create wealth for the future but also offers comprehensive life coverage at the same time.
Overview of Investment Plans
These plans are basically of two types, Unit Linked Insurance Plans or ULIPs that provide returns based on market performance, and traditional endowment plans that offer a lump sum or annuity pay-out at the end of the policy term when the life insurance policy matures. These types of saving schemes or investments offer life coverage and returns but differ in their construct.
A sound investment plan with life coverage and returns invests the premium paid by policyholder in the market instruments and give market returns. These returns are comparatively volatile as they depend on the performance of the stock markets.
Whereas, an endowment plan offers lower but safer returns. However, a customer does not get to know where they are saving money or it is being further used due to the opaque construct of endowment plans, unlike ULIPs where they know where their fund is being put. ULIPs offer customers the option to check the status of their investments through a figure called the Net Asset Value (NAV), among others.
Nonetheless, endowment plans have their own benefits. Where ULIPs give the policyholder a lot more flexibility and transparency, endowment plans act as a guaranteed return investment plans option as they offer definite profits.
Types of Investment Plans
Investment plans are of different types. Here′s a rundown to various investment plans in details:
Unit Linked Investment Plans (ULIPs):
Unit Linked Plan, commonly referred to as ULIP, is a type of investment plan that provides coverage wherein the money paid as premium by the investor is channelized into the stock markets. Each ULIP has a different set of funds that they invest in. Individuals who invest in the best investment plans get a certain number of units of the fund. These investments are based on the correlation of the fund value of the fund they are investing in and the premium the investors have put in.
New age ULIPs, also called 4G ULIPs offer more flexibility in comparison to the traditional ULIPs, and at a relatively lesser cost. Moreover, the exemption of LTCG tax in the Union Budget 2018 made ULIPs even more popular. 4G ULIP plans have low charges and almost zero charges.
The Unit Linked Insurance Plans are amongst the best investment plans option in India in case you are looking for some coverage cum investment options. The ULIP plans give both financial security and life coverage. And one of the best investment plans, ULIPs also give you the leverage to make direct market investments. ULIPs funds can be invested into equity funds or debt funds or both parts. The value of the debt fund or the equity fund is evaluated as Net Asset Value the criteria.
Below is a brief on how ULIPs and Mutual Funds justify your investment needs:
Life Insurance Investments
The best investment plans offer the policyholder both life cover plus the added advantage of saving fund. Life insurance investments are always chosen with a long-term or a short-term objective, like buying a house, child's marriage, and education or just building up a corpus for future. The best investment plans act as a two-in-one solution.
Endowment Plans
Endowment plans are the traditional form of insurance products that offer an individual a life cover with very low profit. Endowment plans are usually taken by individuals who are looking to increase the value of the fund plan but one which offers them guaranteed profits in lieu of a higher life cover.
Endowment plans are the best investment plans for investors who are not looking for a large corpus but are actually more concerned about keeping their funds safe and secure and still receive a certain amount of profits on their assets.
Objectives of Investment Plans
There are various investment objectives for different investors. Here are some of the common objectives of investment plans:
Safety
Every investor seeks safety while investing and safety is one of the prime objectives. There are some investment plans in the form of ULIP that offer guaranteed return possibility.
Income
After safety, comes income. The safest investment plans are the ones that are likely to have a lower yield or rate of income return. The investors should inevitably take risks and sacrifice a certain degree of safety in order to earn better returns. As the returns increases, so does the peril.
Tax Minimization
The investors might pursue some investments so as to leverage tax minimization as a part of their investment strategy. An investor′s another key investment objective is tax saving. The investor can avail tax benefits under section 80C and section 10(10D) of the Income Tax Act, 1961.
Benefits & Features of Investment Plans
The best investment plans or savings schemes offer more than one benefit to the consumers. Primarily, they offer:
Protection to Loved ones
Return on investments with coverage provides the dual benefit of life cover and returns. This means that if anything unfortunate happens to the insured, his/her family will receive the sum for which they were insured in addition to the fund value either as a single or in the form of monthly/quarterly/half yearly payments. These returns help to secure the family needs and monetary goals if the insured party is unable to earn a living or in the unfortunate event of his demise.
Goal-based Planning
A goal-based investment plan is a great way for saving money for a goal - whether it is buying a house or a car, paying for children's education costs, or planning for marriage or after you retire. The endowment funds offer a secure yet safe way to plan for retirement if the insured is not keen on the unit market linked plans. The ULIP plans offer alternative opportunities to invest and the investor can take a look at their historical profits to calculate his/her returns and builds financial corpus in a few years.
Build Fund Reservoir
The best investment plans with coverage cum investments and lock-in period help to save money that can be used to fulfill financial management. Whether the investors want to buy their first house in seven years and/or save enough to buy a second home in the next five, their saving plan feature can help accomplish their goals.
Tax Benefits
The premiums paid under these investment plans qualify for deduction under section 80C of the Income Tax Act, 1961 up to applicable limits. This means that the investor is not taxed on the funds he invests in these options or best saving schemes and additionally the profit is reduced by the investing fund. The exemption, however, is limited to the total exemption limit under section 80C and cannot exceed that statutory limit. In addition, the pay-out received on maturity is exempted from taxes under section 10(10D) of the IT Act.
Options to Obtain a Loan in Lieu of the Same as a Guarantee against Non-PaymentBanking institutions take these plans as collateral for any loans given to the insured. These instruments act as a security for the loan. Since the loan is in the form of a secured loan, the interest rate is generally lower and other terms and conditions more favourable as compared to unsecured loans.
Types of Investment Plans for Children
The planning for children can be further sub-divided into two: the first for the children's education and the second for their marriage. Both education and marriage are major expenses and need proper asset planning. The best investment plans are ideal for these purposes as they provide the child with the necessary covers in addition to helping the parent prepare for the eventual expenses.
Investments Children's Education
The meet the expenses to educate one′s child start taking gargantuan proportions after secondary education. From taking tuition classes to studying for competitive exams, all preparations for furthering their education and career prospects are expensive and need a good financial portfolio. In addition, college fees in private colleges and foreign universities are quite exorbitant and will only increase gradually.
All these expenses cannot be met out of the monthly salary of the parents and need to be properly planned. These are ideal for such cases as they provide the necessary cover for the child and also help the parent build-up a financial corpus for major expenses. Some things to check out while choosing a plan for children's educational expenses include:
Investments for Children's Marriage
The individuals generally sketch the funds to invest in order to meet the expenses of children's marriage with a good financial option. The best investment plans are those that give a pay-out at a certain age of the child such as 23 or 25 years. An early move into the products that provide coverage when the child is young helps to build a large financial corpus of premium.
Options for Retirement Investment Plans
The ideal move for retirement is to begin at a young age; this can help in building a considerable financial corpus by the time the investor/insured person retires.
A good retirement option is one that provides a lump sum pay-out at the retirement age or just before, to meet the relocation expenses from the place where the person is working to his hometown, and regular payments thereafter that serve as monthly earnings for the individual.
The insurance providers offer a range of annuity or periodic pay-out options that the persons can choose from based on their needs. The schemes chosen should depend on the age of the insured person.
Earlier, ULIPs offered the best returns, they were not ideal for people above a certain age due to their higher risk profile. However, 4G ULIP plans offer a very good return potential and systematic withdrawal option. These plans are flexible and offer tax free income.
Investment Plans - Classifications
The investments can be classified based on three factors namely, the type of schemes they provide, the duration in which the premium needs to be paid and the life stage of the investor/ insured person.