Investment Plans

investment

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 –

  1. Fixed-income investment plans
Type of investment planBrief description  
Fixed deposits
  • Fixed deposits are avenues wherein you deposit a lump sum amount of money for a specific tenure and earn a guaranteed rate of interest on your investment 
  • Fixed deposits are offered by banks, post offices and even companies
  • The deposit period ranges from 7 days to up to 10 years and the interest rate ranges from 3% to up to 9%
National Saving Certificates (NSC)
  • These are offered by post offices and allow you to invest for a period of 5 years
  • The minimum investment is INR 1000 
  • The interest rate with effect from 1st July 2020 is 6.8%
Public Provident Fund (PPF)
  • A PPF Account can be opened by individuals in a bank or a post office
  • The minimum amount of deposit is INR 500 and the maximum is INR 1.5 lakhs
  • The tenure of the deposit is 15 years which can be extended in blocks of 5 years
  • The interest rate with effect from 1st July 2020 is 7.1%
Employees’ Provident Fund (EPF)
  • This is a retirement oriented investment scheme for salaried employees
  • Both the employee and the employer contributes 12% of the employee’s basic salary plus dearness allowance towards the EPF Account
  • The account matures when the employee attains 58 years of age
Post Office Monthly Income Scheme
  • This is a savings oriented scheme offered by the post office which also pays monthly incomes
  • The interest earned on your deposits is paid monthly creating a stream of monthly incomes
  • The deposit tenure is 5 years and the maximum deposit amount is INR 4.5 lakhs
Senior Citizen Saving Scheme (SCSS)
  • This saving scheme is meant for senior citizens aged 60 years and above
  • The maximum deposit which can be done is limited to INR 15 lakhs
  • The tenure of investment is 5 years which can be extended by another 3 years
  • The interest rate with effect from 1st July 2020 is 7.4%
Sukanya Samriddhi Yojana (SSY)
  • This is a saving scheme meant to create funds for a girl child
  • The minimum deposit amount is INR 250 and the maximum is INR 1.5 lakhs
  • The tenure of the scheme is 21 years or till the marriage of the girl child, whichever is earlier
  • The interest rate with effect from 1st July 2020 is 7.6%
Life insurance savings plans
  • Life insurance investment plans are those which offer the dual benefit of protection and investment returns.
  • They can be offered as endowment insurance plans or money back plans
  • Guaranteed returns, loyalty additions and bonuses are added under these plans to enhance the benefit payable
  • A guaranteed benefit is paid on death or maturity of the policy

      2. Market-linked investment plans

Type of investment planBrief description 
Stocks 
  • Stocks mean shares of companies that are listed on the Indian stock exchange
  • Investment in stocks is a risky affair since the value of shares fluctuates with time
  • Though stock investment is risky, it has the potential to offer exponential returns on investments
Mutual funds
  • Mutual funds are professionally managed investment avenues that create an investment pool through investment from multiple investors
  • This pool is then allocated across different types of securities depending on the objective of the mutual fund scheme
  • Mutual funds offer attractive returns with the diversification of risks
  • Mutual funds come in different variants to suit different investor profiles
Equity Linked Saving Schemes (ELSS)
  • These are a type of mutual fund schemes that offer tax benefits on investment
  • Investment into ELSS qualifies as a deduction from your taxable income up to INR 1.5 lakhs under Section 80C
  • There is a lock-in period of 3 years on ELSS investments during which the fund cannot be redeemed
National Pension System (NPS)
  • NPS is a retirement oriented saving avenue launched by the Government of India
  • The account matures when you attain 60 years of age
  • You can invest in a mix of different types of market-linked funds based on your investment strategy 
Unit Linked Insurance Plans (ULIPs)
  • ULIPs are market-linked life insurance plans which offer insurance as well as market-linked returns
  • The premiums that you pay for the policy are invested in different funds, as per your choice. These funds invest in market-linked securities for providing good returns
  • In case of death during the policy tenure, the higher of the fund value or the sum assured is paid
  • On maturity, the fund value is paid.

         3. Other investment avenues 

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

Type of investment avenueBrief description 
Real estate
  • Real estate involves investment into property or a plot of land
  • This avenue is suitable for individuals with a considerable savings corpus who want to invest for a long term period
  • Attractive returns can be earned on real estate investments if property values rise
Gold 
  • Investing in gold is also popular as gold allows hedging against inflation
  • Investment in gold can be done through physical gold, gold ETFs, gold sovereign bonds or gold mutual funds

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 –

  1. 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.

 

         2. 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.

 

        3. 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

Type of investment planInvestment horizonRisk profile
Fixed deposits by banks or post offices7 days to a yearLow as guaranteed returns are provided 
Recurring deposits1 month to 12 monthsLow as guaranteed returns are provided
Liquid mutual fundsNo specific tenure. You can redeem funds whenever needed Low as the fund invests in debt securities 
StocksNo specific tenure. You can redeem funds whenever needed Very high as stock prices are volatile in nature

Best Investment Plans for 3 years 

Type of investment planInvestment horizonRisk profile
Fixed deposits by banks or post offices7 days to 3 yearsLow as guaranteed returns are provided 
Recurring deposits1 month to 36 monthsLow as guaranteed returns are provided
Debt mutual fundsNo specific tenure. You can redeem funds whenever needed Low as the fund invests in debt securities 
Large cap equity fundsNo specific tenure. You can redeem funds whenever needed High since the fund invests in stocks of large cap companies
Equity Linked Saving SchemeLock-in period of 3 years after which the funds can be redeemedHigh since the fund invests primarily in equity-oriented securities 

Best investment plan for 5 years

Type of investment planInvestment horizonRisk profile
Fixed deposits by banks or post offices7 days to 5 yearsLow as guaranteed returns are provided 
Recurring deposits1 month to 60 monthsLow as guaranteed returns are provided
Debt mutual fundsNo specific tenure. You can redeem funds whenever needed Low as the fund invests in debt securities 
Large cap equity fundsNo specific tenure. You can redeem funds whenever needed High since the fund invests in stocks of large cap companies
Equity Linked Saving SchemeLock-in period of 3 years after which the funds can be redeemedHigh since the fund invests primarily in equity-oriented securities 
National Saving Certificate5 years minimum Low as guaranteed returns are provided
Senior Citizen Saving Scheme5 years minimum Low as guaranteed returns are provided

Best investment plan for 15-20 years

Type of investment planInvestment horizonRisk profile
Equity mutual fundsNo specific tenure. You can redeem funds whenever needed High as the fund invests primarily in equity
Large cap equity fundsNo specific tenure. You can redeem funds whenever needed High since the fund invests in stocks of large cap companies
Equity Linked Saving SchemeLock-in period of 3 years after which the funds can be redeemedHigh since the fund invests primarily in equity-oriented securities 
Public Provident Fund15 years minimum Low as guaranteed returns are provided
National Pension SystemUp to 60 years of age Depends on the investment fund selected. However, the risk is moderate since equity exposure is limited
Life insurance endowment or money back plans10 years to up to 30 or 35 yearsLow as guaranteed benefits are payable on death or maturity
Unit Linked Insurance Plans 10 years to up to 30 or 35 yearsDepends on the fund selected


One time investment plans

Type of investment planInvestment horizonRisk profile
Fixed deposits by banks or post offices7 days to 10 yearsLow as guaranteed returns are provided 
Debt mutual fundsNo specific tenure. You can redeem funds whenever needed Low as the fund invests in debt securities 
Large cap equity fundsNo specific tenure. You can redeem funds whenever needed High since the fund invests in stocks of large cap companies
Equity Linked Saving SchemeLock-in period of 3 years after which the funds can be redeemedHigh since the fund invests primarily in equity-oriented securities 
Life insurance single premium plans – endowment, money back or ULIPs10 years to up to 30 or 35 yearsGuaranteed returns under traditional saving plans. Under ULIPs, the risk depends on the fund selected
Real estateNil. You can buy and sell property whenever you wantLow as real estate prices usually increase with time
Gold Nil. You can buy and sell gold whenever you wantLow. Gold price fluctuations are, however, cyclical in nature

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 –

Name of the planType of planEntry ageSum assuredSalient features 
Bajaj Allianz Future GainULIP1 to 60 yearsUp to 15 times the annualized premium 
  • Low premium allocation charges
  • Two types of investment strategies
  • Seven investment funds to choose from
ICICI Pru Signature (Online)ULIP0 to 60 years10 times the annualized premium
  • Mortality and administration charges are refunded on maturity
  • Coverage till 99 years with a whole life option
  • 4 portfolio strategies to choose from
HDFC Life Sachay Par AdvantageMoney back30 days to 65 yearsINR 3 lakh onwards
  • Coverage can be taken up to 100 years
  • Money-back benefits can be received immediately or after a specific period
  • Bonus additions to enhance benefits
LIC Jeevan UmangMoney back90 days to 55 yearsINR 2 lakh onwards
  • Money-back benefits annually from the end of the premium payment term
  • 8% of the sum assured is paid as survival benefits
  • Choice of 4 optional riders for enhanced coverage 
TATA AIA MahaLife GoldEndowment plan30 days to 60 yearsINR 1 lakh onwards
  • Coverage can be availed till 85 or 100 years of age
  • Limited premium payment
  • Cash dividends and guaranteed annual coupons enhance the plan benefits
Max Life Savings Advantage Plan Endowment plan91 days to 65 yearsINR 24,425 onwards
  • Guaranteed additions in the first 5 policy years
  • Enhanced death benefit after 10 policy years
  • The death benefit can be taken in a lump sum or in monthly incomes

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 –

Income tax sectionTax benefit available 
Section 80C

This is the most popular section which allows a deduction for investments. The maximum deduction available under this section is INR 1.5 lakh.

Following are the investment plans –

  • Life insurance policies (for premiums up to 10% of the sum assured)
  • ELSS schemes
  • PPF
  • EPF
  • NSC
  • NPS
  • SSY
  • SCSS
  • 5-year fixed deposits
Section 80 CCD (1B)Investments into the NPS scheme, up to INR 50,000, are allowed as additional deductions under this section over the deduction limit of Section 80C
Section 80 CCD (2)Contribution by your employer towards an NPS account on your behalf is allowed as a deduction under this section in addition to the above-mentioned deductions. The limit of deduction is 10% of your basic salary plus dearness allowance 
Section 10 (10A)Under deferred annuity plans offered by life insurance companies, 60% of the maturity benefit can be withdrawn in a lump sum. However, only 33% of the corpus of the total corpus can be withdrawn tax-free under this section. The remaining portion would be taxed as per slab.
Section 10 (10D)Death Benefits and Maturity benefits received from life insurance plans are tax-free under this section if the premium was limited to 10% of the sum assured.
Section 80 TTAInterest earned on saving account is tax-free up to INR 10,000
Section 80 TTBInterest earned by senior citizens on deposit accounts is tax-free up to INR 50,000

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
Investment Plan Frequently Asked Questions
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