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One of the fundamental habits that one should possess to maintain a stable and sustainable level of personal wealth is to channelize their savings. It helps in the accomplishment of short-term and long-term goals. Savings investment plans help to mobilize and invest these savings to get better returns at the same time. To understand the factors that one should remember while selecting a savings investment plan, one needs to first understand what a savings investment plan is. There are several investment plans in India.
Savings investment plans are financial instruments that help to create wealth for the future. It is an investment plan that offers lifelong coverage. It is like life insurance, which provides a considerable return on investment. There are few additional benefits of these savings investment plans like capital accumulation and insurance coverage. Thus, keeping the savings idle will not be beneficial for the investor. At the same time, it is essential to understand the importance of investing, and savings-investment plans give the best opportunity to do so.
One should keep these seven factors in mind while choosing the alternatives to invest in a savings policy.
Age and personal choices are some of the most critical aspects that one should consider while taking up a savings policy. People who belong to a younger section of the population can invest in riskier savings instruments as their risk appetite is much higher than a person who has retired or is above 45. With a higher level of risk, there are higher returns. It depends on whether the investor that is investing his savings is risk-seeking, risk-neutral, or risk-averse. Provided that the investor has aggressive risk-taking abilities, he/she can opt-in for a savings policy that has higher risk and earns higher returns. In the case of a risk-neutral investor, it does not matter to what extent the savings policy and investment plan have risk exposure. The investor would invest regardless of the level of risk. Finally, risk-averse investors only want to take the bare minimum risk even if they earn lower returns. Therefore, one needs to identify his risk profile carefully and analyze whether it aligns with the financial plans that he or she will choose.
There are various types of financial goals for several investors. Each of them has different goals for the short and long term. It is essential to understand the reason for their investment. For some investors, it is to get tax* benefits from the government as they can avail some deductions if one invests in such schemes. For some, it is an alternative for taking up annuities. One should have clarity before taking up a savings policy and investment plans.
Saving investment plans should be taken up for the vesting period that caters to the requirements and needs of the investors. There are several saving plans that people opt out of depending on this period. This also depends on the amount of savings that an investor makes. It is known that there cannot be a stable rate of savings throughout their lives. Analyzing the deviations in savings is one way to diversify the risks and determine an effective vesting period for both the short- and long-term gains.
While investing in a savings policy, one should also focus on the inflation rate. Provided the inflation rate is lower than the rate of return of the savings policy and investment plan, only then should one take up the savings plan. The investor would create personal wealth in real terms. If the inflation rate is higher than the rate of return, there will be no real creation of wealth or any capital accumulation. If an investor is taking up the investment on a long-term basis, he/she should analyze and understand both the positive and negative implications that inflation can cause.
If one is investing for a longer time horizon, he/she should take up a savings investment plan that is flexible. In this case, the plan's flexibility refers to whether the amount invested can be withdrawn or liquidated at short-term intervals whenever there are any emergencies—this helps to reduce the risks about the contingencies that arise in such situations. Having a flexible savings policy ensures financial security for the short term and facilitates other benefits like tax* savings and liquidity. Therefore, it is essential to read the terms and conditions before signing the contract.
While taking up a savings plan, one must understand that expenses borne by him/her should be minimal. If most of the capital that is available with the investor is given away as expenses, then the real capital accumulation will also reduce in the future. Thus, determining and choosing the right plan is extremely crucial. One should compare the various options they have under savings investment plans, and only then should they take an informed decision.
One needs to track the performance of the savings policy and investment plan over the years to understand which risk class the plan falls under. It is essential as it also opens up diversification opportunities for the investor. A regular review of the portfolio of the funds of investors is required.
Tata AIA Life Insurance Company Limited brings a wide range of savings policies and investment plans. One of them is the Fortune Guarantee Plus(UIN-110N158V02). Thus, one can observe that all the above factors lead to a safe and secure investment plan decision and focus on various technicalities at the same time.
Equipped with these factors, one can make informed decisions about savings investment plans. Not only will it help in creation of wealth for future purposes but also make the investor financially sound. Thus, it is important to choose the right savings policy and investment plan.
People Also Ask Answered in the Article:
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*Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.