Investment Plans

Everyone has financial goals for which sufficient funds are needed. That is why every individual invests their hard-earned money into different avenues to create sufficient funds for their financial goals. This is where investment plans come into the picture. 

Let’s have a look at what investment plans are.

What are Investment Plans?

Investment plans are those avenues that allow you to save money and earn returns on your investments. When you invest money in an investment plan, the plan offers you returns on your investments which help your money grow. This growth then turns your investments into a sizable corpus, which can be used to meet your different financial needs and goals.

For example, say Mr Sharma needs INR 20 lakhs after 10 years to wed his daughter. He starts investing INR 10, 000 every month into an investment plan which offers a return of 10% per annum. After 10 years, he accumulates INR 20 lakhs and plans a grand celebration for his daughter’s wedding. Thus, the investment plan that he selected helped him build a corpus for his financial goal.

Different Types of Investment Plans

Since the investment needs and risk tolerance differs from person to person, there are different types of investment plans available in the market. 

There are fixed-income investment plans as well as market-linked investments. Since the risk varies, the returns vary too. Under fixed income investment plans: a low-risk option, guaranteed returns are offered on your investments. Whereas, under market-linked plans: a mid to high-risk option, returns are not guaranteed, but could be higher than fixed-income plans. 

Let’s have a look at the different types of popular investment plans –

• Fixed-income Investment Plans

• Market-linked Investment Plans

•  Other Investment Avenues 

Besides fixed income and market-linked investment plans, there are other avenues too which include the following –

Benefits of Investment Plans

Though there are different types of investment plans available in the market, every plan offers a range of benefits to investors. These benefits include the following –

• Fulfilment of Financial Goals

The primary reason to invest is to create a corpus which helps you fulfil your financial goals. That is why you look at avenues that provide maximum returns to build the maximum possible corpus. By investing in investment plans, you can grow your wealth through returns on investments and create a corpus. This corpus can, then, be used to meet your financial goals.

• Income Tax Benefits

Many investment avenues help you in tax planning so that you can save taxes on your investments as well as on the returns earned. For example, investment avenues like life insurance, ELSS schemes, PPF, EPF, NSC, NPS, 5-year fixed deposits, etc. are eligible for deduction under Section 80C. Investments done into these schemes allow you to reduce your taxable income by INR 1.5 lakhs which, subsequently, reduces your tax liability. Similarly, returns earned from life insurance policies, PPF, ELSS schemes (up to INR 1 lakh), etc. are allowed as tax-free incomes. This helps you create a tax-efficient corpus for your financial goals.

• Flexibility to Switch

When you invest in market-linked investment avenues like Unit Linked Insurance Plans, mutual funds and the NPS scheme, your investments are done in selected funds. These schemes offer you the flexibility to change your investment funds during the investment tenure if you want. This change is called switching and it allows you to protect your returns in case of market volatility.

• Investment as Per Your Risk Profile

Since investment plans come in different variants, they fulfil the investment needs of investors with different types of risk appetite. If you are a risk-averse investor, you can invest in a range of fixed-income investment plans like fixed deposits, PPF, NSC, etc. On the other hand, if you are a risk-loving investor, you can choose from the range of market-linked investment options like stocks, mutual funds, ULIPs, etc. So, there are investment plans for all types of risk appetites making the plan universally suitable.

• Life Cover

Life insurance investment plans offer life cover along with investment returns. This coverage ensures financial protection to your family in case of your premature demise. Thus, whether you choose life insurance savings plans or unit-linked plans, you get an inbuilt coverage benefit covering the risk of premature death during the plan tenure.

• Wealth Creation

Investment plans, through the returns that they add to your investment, help in wealth creation over the investment tenure. Whatever type of investment plan that you choose, you can create wealth with such plans if you remain invested in them for a long term period.

• Collateral Against Loans

Your investments are in a way your assets, which you can use as collateral security to avail loans when needed. Many investment plans allow partial withdrawals from your investment itself when you need funds for financial emergencies. For example, the EPF scheme, PPF scheme, NPS scheme, life insurance unit-linked plans, etc. allow partial withdrawals during the investment period. Similarly, other investment plans can be used as collateral for availing of loans. So, besides creating a corpus for your financial goals, investment plans also help you to access funds when needed.

How to Choose an Investment Plan?

Among the different types of investment plans available in the market, the plan that you should choose depends on three major factors – 

1. Financial goals
2. Risk appetite 
3. Investment horizon

Let’s understand how –

• Financial Goals

Your financial goals determine the amount of corpus that would be needed and when. So, the first factor which helps in determining the investment plan you should pick is your financial goal. For example, if you want funds for buying a house, you need to ascertain the corpus needed and the period after which you would buy your house. Your financial goals are the foundation of your financial plan based on which you can choose the required investment plans.

• Risk Appetite

Since investment plans come in both fixed-income and market-linked variants, you need to figure out your risk appetite so that you can choose suitable investment plans. If you want to avoid risks, choose fixed-income investment plans and avoid exposure to market-linked ones. Similarly, if you are risk-loving in nature, pick market-linked investment plans to earn attractive returns.

• Investment Horizon

You need to know the period after which you would need funds so that you know your investment horizon. Depending on your investment horizon you can pick suitable investment plans. For example, if you want funds within the next one or two years you can invest in 1 or 2 years fixed deposits, mutual funds, stocks, etc. which can be redeemed within a short time.

Here are some suitable investment options based on your investment horizon and risk appetite 

Best Investment Plans for 1 year

Best Investment Plans for 3 years 

Best Investment Plan for 5 years

Best Investment Plan for 15-20 Years

One time Investment Plans

Investment Tips

Before you choose any investment avenue, here are some investment tips which you should follow –

1. Investment Goals
   Always align your investments with your investment goals. This would allow you to use your investments to fulfil the financial goals that you have.
2. Risk Assessment
   The investment plans that you choose should match your risk profile so that you are not emotionally stressed with the performance of your investments.
3. Investment Horizon
   The investment horizon of your investments should match the horizon of your financial goals so that you have access to funds when your goals need to be realized.
4. Tax Planning
   Choose tax-efficient investment avenues so that you can generate wealth and also save taxes in the process.
5. Compare Returns
   Compare the returns offered by different investment plans and then choose a plan which offers the best returns. When comparing returns, compare similar investment plans with each other. For instance, compare ELSS with ELSS funds and not with debt mutual funds or other types of mutual funds.

Best Investment Plans in 2021

Though there are a lot of investment avenues, if you are looking for insurance cover, life insurance investment plans are the best bet. They come in different variants too making them suitable for every financial need that you have. Some of the best life insurance investment plans for 2020 are as follows –

Investment Plan Tax Benefits

Different types of tax benefits can be availed from different investment plans under different sections of the Income Tax Act, 1961. Here are some of the common tax benefits which can be availed from investment plans –

Moreover, the tax benefit is also available on the following –

• Long term capital gains earned from mutual fund schemes and equity stocks are tax-free up to INR 1 lakh
• Returns earned from PPF and EPF scheme are tax-free
• 60% of the corpus of the NPS scheme can be withdrawn in a lump sum on maturity. This lump sum withdrawal is tax-free

Documents Required to Buy Investment Plans

To buy investment plans, you need to submit a set of documents. The documents required to depend on the plan that you are buying but the following are some of the most common documents which are needed –

• Photograph of the investor
• The application form for the investment plan
• Identity proof
• Address proof
• Age proof
• Bank account details
• Income proof if you are  making a large deposit
• PAN Card 
• Aadhaar card