Investment plans are ideal if you are looking to build capital over time towards fulfilling short-term or long-term financial goals. These plans are designed in a way that a part of the premium paid is used to provide insurance coverage, while the remaining is invested in a financial instrument. The amount invested primarily depends on policyholders’ risk-taking capacity.
How do Investment Plans work?
Investment is done with a financial goal that helps in generating income and accumulating a corpus over a period of time. These investments can include bonds, stocks, fixed deposits, provident funds, amongst others, which can substantially grow savings to act as a fall-back option upon retirement or for an additional source of income.
However, while our money grows, investments are generally accompanied by high risks. Market-linked investment plans tend to have a higher risk-return profile. Depending on how the stocks perform in unit-linked funds and income from bonds and deposits made, investors receive returns that they can use to cover financial obligations as they deem fit.
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Importance of Investment Policies
Investing a part of your income/savings can help create a budget for monthly expenditures, bills, and taxes.
Financial planning is crucial to increase savings and work effectively towards financial goals.
Investments create opportunities to cover unexpected expenses related to healthcare, education, etc.
It offers financial security to investors and their families.
Investments, in the long run, can be switched to a regular source of income on retirement.
Benefits of Buying Investment Plans
Financial Protection
Short and long-term goals such as child's marriage, education, retirement, etc. can be fulfilled if you carefully plan your investments
Good Returns
Returns on investment plans are usually better if you consider post-tax yields compared to other investment options (especially in Unit-Linked Insurance Plans)
Tax Benefits
You get a tax deduction for the premium you pay under Section 80C and the money you receive on maturity is tax-free under Section 10 (10) D of the Income Tax Act. Please note that different plans have different tax exemptions and you are advised to carefully evaluate the same.
Riders Benefits
You can add riders like Critical Illness, Accidental death, waiver of premium, etc.
Loan
You can also avail of a loan on the investments in case you need money at a later stage. The rate of interest differs from company to company.
Dual Benefits
You get the benefit of saving your money for future needs as well as increasing your wealth by investing in the stock market.
Best Investment Options in India
The table below lists some of the best investment plans offered by life insurers in India.
Investing should be made a habit, especially if you are a young individual with a regular source of income. Be it a simple life insurance plan or a provident fund, ULIP, or a regular systematic investment plan, if you love seeing those extra zeroes in your account, you need to start planning.
The internet is swarming with information on various investment vehicles that you can leverage for a financially secure future. Let's discuss some of the best investment options available in India.
ULIP (Unit Linked Insurance Plans)
If you are on the lookout for a comprehensive option that covers insurance, wealth creation, and saves tax all in one, ULIP should be your priority. As a policyholder, you either pay a monthly premium or an annual premium. This premium amount is partly used for Life cover and part of it is invested in equity, bonds, debts, mutual funds, or other market funds.
Endowment Plans
An endowment plan pays out the sum assured in lump sum even if the policyholder survives the tenure of a plan. This plan sets you up for a huge amount upon maturity in addition to tax benefits.
ULIP vs Endowment Plans
ULIPs
Endowment Plans
Chances of high returns but greater risks involved
Offers low but safer returns
Policyholders are aware of where their money is being invested
Opaque nature does not allow a purchaser to see where the money is being invested
Lots of flexibility and transparency
Guaranteed financial savings option with definite returns
**Last Updated on April, 2022
Money-Back Plans
Money-Back plans are a combination of insurance and investment. These plans offer death benefits in addition to a percentage of sum assured as returns at regular intervals.
You, as a policyholder, will pay premiums for a specified number of years, following which you will receive payouts periodically. The plan enables you to save for a few years and get the money back right when you need it. It is worth noting that the survival benefit comes with accrued terminal bonuses as well.
Fixed Deposits
The oldest investment scheme known in India, fixed deposit is also one of the most convenient investment plans available to you. The principal amount deposited by you is free from any taxation policies and the rate of interest remains constant throughout the policy tenure. If you are averse to risks, this is your safest bet.
Customers can also avail of loans on fixed deposits. You are eligible to apply for a loan of up to 90% of the entire FD amount. But the tenure of a loan cannot be more than the fixed deposit tenure for obvious reasons.
However, of late, FDs have been losing their popularity due to reducing interest rates.
Bonds
Bonds are a form of debt investment, wherein investors are given the opportunity to loan funds to banks or a government entity. The issuer is liable to pay you the debt with interest. However, interest received from government-issued bonds is taxable.
Public Provident Funds (PPF)
Introduced in 1968, PPFs continue to remain one of the most sought-after savings and investment vehicles in India even today. Attractive interest rates and tax-saving benefits are primary reasons why investing in a PPF has been the go-to option for most. Another factor that drives people to invest in it is the fact that the amount invested and the interest earned remains protected by the Indian sovereign.
Further, PPF allows withdrawal facilities from the 6th year of investment and a loan at a rate of 2% per annum above the interest paid can be availed from the 3rd to 5th year of investment.
National Savings Certificate (NSC)
Issued in denominations of Rs. 100, Rs. 500, Rs. 1,000, Rs. 5,000 and Rs. 10,000, NSC is an effective tax-saving investment instrument backed by the government of India. NSCs are paper-based deposits that are issued by the Post Offices when you make a suitable deposit. Compounded annually, the interest rate under NSC tends to change as per regulations put forth by the Ministry of Finance. NSC is a lucrative deal for the interest accrued is virtually tax-free. Further, there is no cap on the maximum amount that can be invested. Notably, NSCs can be used as collateral to acquire loans too.
National Pension Scheme (NPS)
The National Pension Scheme is probably one of the most underrated investment options in the country. Introduced as a specialized pension scheme solely for government employees, today this scheme extends to regular citizens as well. It is a long-term, post-retirement investment option managed by the Pension Fund Regulatory and Development Authority (PFRDA). NPS funds are exempted from taxation on withdrawals by the Direct Taxes Code.
Mutual Funds
It is an investment plan, wherein funds from investors are pooled by an Asset Management Company (AMC) that further invests it in bonds, equities, or securities. We will also quickly discuss Equity Mutual Funds and Debt Mutual Funds, both excellent investment options with high returns.
Equity Mutual Funds
Under the equity mutual fund scheme, investors put their capital into the equity stocks of companies. Securities and Exchange Board of India (SEBI) has established certain guidelines pertaining to Mutual Fund Regulation. It mandates that an equity mutual fund scheme invest a minimum of 65% of its total assets in equity and related instruments.
Debt Mutual Funds
Debt mutual fund schemes are suitable for those who wish for steady returns. These schemes mostly tend to be less volatile as compared to equity funds. Debt funds are primarily invested in corporate bonds, government securities, treasury bills, commercial paper, and other money market instruments, that generate a fixed interest.
It is important to note that debt mutual funds also carry risks related to interest rates and credit risks.
Tax Saving Mutual Funds
ELSS or Equity Linked Saving Schemes is currently the only tax-saving mutual fund option available. The entire invested amount under ELSS is tax-free. It has also one of the lowest lock-in periods, capped at three years, and requires a minimum investment of Rs. 500.
Short-Term Investment Plans versus Long-Term Investment Plan
In financial terms, an investment that is done for a year is known as a short-term investment, whereas long-term plans are those which last for more than one year. In the table below, we have categorised the investment options discussed above into short-term investment plans and long-term investment plans.
Investment Option
Tenure
Risk profile
ULIP
Mid-Long term
High
Endowment Plans
Short-Mid Term
Low-Moderate
Money-Back Plans
Short term
Moderate-High
Fixed Deposits
Short-Mid Term
No Risk
Bonds
Long-term
Low
PPF
Long Term
No Risk
NSC
Long term
Low
NPS
Long term
Low-High
Mutual Funds
Equity: Long Term Debt: Short-Mid Term
Moderate-High
Tax Saving Mutual Funds
Mid-Long Term
Moderate-High
**Last Updated on April, 2022
Key Features of Investment Plans
Most investment plans in India offer accrued loyalty bonuses and yearly additions
Premium payment is largely flexible with the option to pay yearly, half-yearly, quarterly, and monthly.
Risks associated with market-linked funds are mostly borne by the investors.
Almost every other investment plan comes with dual benefits of life cover and financial protection.
Additional riders can be availed to enhance coverage.
The power of compounding is the primary force that drives returns on investments.
Investment Plan Riders
1. Accidental Death Riders can be availed if the policyholder dies in an accident. The insurance company is liable to pay the sum assured in addition to the rider benefit to the beneficiaries.
2. Permanent Disability Benefit Rider is a key add-on that covers the policyholder in the event that they suffer a permanent disability due to an accident.
3. Critical Illness Rider offers additional cover if the policyholder is diagnosed with pre-specified critical illnesses such as cancer, heart attack, kidney failure, stroke, paralysis, among others.
In the event that policyholders lose their income as a result of disability, Waiver of Premium ensures that all future premiums payable are waived off without affecting associated policy benefits.
4. Accelerated Death Benefit Rider covers terminal illnesses, such as AIDS, Cancer, Ebola, Leukemia, wherein a part of the sum assured is paid in advance and the remaining is paid to the nominee upon the death.
Factors To Consider before choosing an Investment Plan
We have attempted to identify critical factors that you should compare before coming to a decision that effectively reflects your investment goals. Some of these factors are:
Returns on investments compared with a benchmark
Associated risks against each investment plan
Dual benefits of life cover and savings
Flexibility in Premium Payment
Choice of payout in lump sum or instalments
Range of riders for enhanced life coverage.
Reliability of the Fund House
Deciding the Right Cover
The amount of information available today is enormous. It is crucial that you filter out the most relevant options. To get the best investment option and the right amount of coverage, we suggest you take the help of online portals that allow you to compare investment plans from the comfort of your home. These portals present accurate quotes and the best prices to help you make the right investment.
Analyse Your Risk Profile
Find out how much you are willing to lose as a first step. If you are absolutely averse to risks and want guaranteed returns, you should opt for plans with a low-risk profile. However, if you are someone who can be patient with stock performance and are willing to wait to see your funds perform better, you should invest in market-linked financial instruments.
Decide on a Budget
Figure out an amount that you would have in excess at the end of each month. Start off with smaller investments where you can afford a couple of losses.
Determine your goals
It is important to have a purpose for your investments. Establishing whether it is a short-term goal or for long-term retirement planning or any other financial obligations is paramount. Once you figure out a financial goal, you will have a clearer picture of the plan to invest in.
Buy Investment Plans From PolicyX.com
Compare plans provided by top insurance companies through PolicyX.Com
Choose a plan that suits your requirements.
Fill the proposal form that requires some basic information.
Upload your documents online.
Make the payment through the selected mode.
Claim Process
In the case of the insured's death,nominees are advised to inform the insurer with important details such as time, place, and cause of death.
1. They are then required to submit documents and proof to the insurance company in the form of a death certificate of the Life Assured and the claim form.
2. There could be additional requirements such as post-mortem, hospital, and attending doctor's reports.
3. Cases involving police inquiries will need an investigation/survey report to be submitted.
4. After the investigation, the insurance company can choose to approve/disapprove the claim.
5. The details of the same will be shared with the claimant.
In case of plan maturity,policyholders are liable to receive benefits mentioned under the investment plan with accrued bonuses applicable against each plan. Investors are advised to approach their respective life insurance companies to file a claim.
Documents Required To Buy Online Investment Plans
Age Proof:
Birth Certificate, 10th or 12th mark sheet, Driving License, Passport, Voter ID, etc. (Anyone)
Identity Proof:
Driving License, Passport, Voter ID, PAN Card, Aadhar Card, which proves one's citizenship
Income Proof:
Income proof specifying the income of the person buying the insurance
Address Proof:
Electricity Bill, Telephone Bill, Ration Card, Driving License, Passport, should clearly mention the permanent address
The risk profile of investment plans varies according to the type of fund and the investment objectives. For your information, mutual funds are effective in weathering inflation in the long-term.
2. What does the partial withdrawal of funds mean?
Several unit-linked plans allow investors to withdraw a part of the funds invested to help cover financial exigencies. This is an instance of partial withdrawal.
3. How can I avoid risks but also get high returns on investments?
Several endowment plans guarantee a high sum assured. However, you might want to diversify your investments or focus on asset allocation to get higher returns and also manage risks.
4. What are some of the examples of low-risk investments, high-risk investments, and moderate-risk investments?
Do you have any thoughts you’d like to share?