How to Choose a Savings Plan in India?

Financial Planning is a priority these days. In this ever-changing, technologically evolving, fast-paced era, you never know what might happen. You need to have enough money saved and adequate coverage from financial tools in cases of emergency.

It is hard to tell when someone in the family meets with an accident or worse. Not only is everyone devastated, but the bill collectors are unsympathetic. You have to pay for the costs of livelihood, no matter the personal tragedy. Therefore, keeping appropriate savings plans handy is not just an option but an absolute necessity.

What are Savings Plans?

Savings plans are essentially compounding interests on the money you save for a predetermined period of time. It could be in the form of term life insurance with tax-saving options for salaried employees and retirees, individual or employee provident funds, national funds and schemes, pension plans, or even fixed deposits. This is the money you put away for a rainy day or invest for emergencies and receive higher benefits in the long run.

To understand how savings plans work, let’s consider an example.

Suppose Rina, the sole wage-earner, purchases a term life insurance for INR 1 crore coverage for a 30-year tenure. God forbid, if she meets an untimely death, her beneficiaries will get the sum insured to pay their bills, invest in their future, and plan for the economic stability of the household.

However, if Rina were to survive the 30-year tenure, she would receive the maturity benefit, which has nicely compounded over the years. Now, the benefit is tax deductible and Rina can plan for retirement, buy a house for her family, plan her son/daughter’s wedding, invest it in the stock market, or just about anything she wants to do.

Depending on the type of savings plan, she could also receive interest or claims at regular intervals such as INR 10 lacs every 10 years during her insurance tenure as well. The remaining amount will be settled once the policy matures. If Rina did use the money-back plan, then even if she received INR 20 lacs in the first 20 years and sadly passed away in the 25th year of your insurance tenure, then the family would still receive the entire sum insured of INR 1 crore regardless of the INR 20 lacs settlement earlier.

Through this example, we see that savings plans can serve both short-term and long-term needs for you and the family. There are also tax savings options for salaried employees as well as for retirees. Section 80C, 80CCD (B), and 80TTB also offer addendums to help keep your claim benefits and maturity benefits free of taxation.

How to choose the best savings plan in India?

In order to select the right savings plan, you need to take a hard look at the available options and your long-term needs. You could diversify your savings plans for complete coverage in cases of emergencies, as well as build a corpus for retirement years. You could also opt for a multifaceted insurance plan that helps cover costs over the course of your life and plans for your beneficiaries. Let’s take a closer look at different options of savings plans available in India that could benefit you:

1. Unit-linked Insurance plans - It is a smart plan to combine your insurance policies with investment plans. ULIPs are market-linked schemes wherein part of your premiums are set aside for claims on the sum assured while the other part is invested in the market so you receive profits based on the incline or decline of the market investment.

2. Endowment term insurance savings plan - Very similar to the ULIPs are the endowment plans, which also help you earn money during the tenure of your insurance policy. You can be a participating or non-participating member as per your preference. However, if you choose to participate, you will receive a sum assured in the form of a set amount of interest every month.
   Considering the example of Rina, let’s say there is a case of untimely death, then the beneficiaries receive the interest over the months and will receive the sum insured upon filing the claim. However, if Rina survives the tenure of her endowment savings plan, then she could use the interest to pay the bills and receive a lump sum amount when the policy matures. Therefore, not only is it savings for the future, but it is also the plan where your money works to make more money.

3. Money-back life insurance plans - Another form of insurance to save money and earn from the policy is the money-back plan. This particular scheme pays you a certain sum at regular intervals of your tenure. The time period between payments is predetermined.
   This plan allows you to receive money during the course of your life, and in cases of untimely death during the tenure of your insurance, your beneficiaries still receive the entire sum insured.

4. Public or Employee Provident Fund - Tax savings options for salaried employees boast the provident funds. You can opt for Public, which is a provident fund offered by the government that allows you to make investments and reap interest over time.
   If you are employed in a company that is eligible for EPF, you can also reap these tax savings options for salaried employees and save a lot of money through the years.

5. Fixed Deposits - This is one of the options that require very little consideration. You can put aside a certain sum of money for a given period at a specified rate of interest. The amount has to be deposited as a lump sum payment and you cannot break the FD before it matures, otherwise, you won’t receive your interest.

   It is a marvellous plan except you need to consider the market inflation rate annually and determine if the rate of interest beats the rate of inflation.

6. National Pension System - Among tax savings options for salaried employees, the NPS helps you put aside money for your senior years. It also helps earn a reprieve from taxation under Section 80C.

Conclusion

Consider your form of employment, long-term goals, emergencies such as accidents, chronic illnesses, retirement plan, and children’s benefits such as education, wedding, etc. when choosing the best savings plan for you in India.

Although most of the plans, including some insurance policies, are tax-deductible, they still have addendums such as age, income, gender, profession, etc. Understand the savings plans and the benefits they offer in long-term savings and wealth management when making a decision that is right for you and your family.