Investment plans are an important part of financial planning in India. With a variety of investment options available, it is important to understand which type of investment plan is best suited to your needs and goals. This article will help you understand the different types of investment plans in India, their benefits, and the risks associated with each type. Before diving into the topic let’s know what is an investment plan and its benefits.
What is Investment Plan?
Investment planning is an important part of financial planning. It involves creating a plan to help you reach your financial goals by investing in different types of plans. Investment planning aims to create a portfolio that will generate returns while minimizing risk. Investing in the right mix of assets can help you reach your financial goals faster and with less risk than if you were to invest without a plan.
Benefits of an Investment Plan
Investment plans are a great way to ensure that you have enough money saved up for the future. They offer a variety of benefits, such as tax savings, diversification, and the potential for long-term growth. Investing in an investment plan can help you achieve your financial goals and secure your financial future. Here are the main benefits of investing in an investment plan:
- Tax Savings: Investment plans provide tax advantages that can help reduce your taxable income and increase your savings over time.
- Diversification: Investment plans allow you to spread out your investments across different asset classes, reducing risk and increasing potential returns over time.
- Long-Term Growth Potential: Investment plans can provide long-term growth potential due to compound interest, which is when the interest earned on investments is reinvested into the portfolio to generate additional returns over time.
- Higher Returns: Investment plans can have higher returns because they take advantage of compounding interest which enables you to earn more money over time compared to traditional investments such as a savings account or stock market.
Different Types of Investment Plans based on Risk Factors
Investing in India is a great way to grow wealth and achieve financial goals. There are various types of investment plans available in India that offer different levels of returns, risk and liquidity. Here are the main three types of investment plans based on risk factors:-
- Low-risk Investment
- Medium-risk Investment
- High-risk Investment
Low-Risk Investment
Low-risk investments are those where the risk is really low. They tend to provide stable and reliable, but not too great, growth of capital. They can also suffer minimal losses.
- Money Back Policy: Money-back policies are a type of life insurance plan that provides periodic payments to the policyholder during the policy term, as well as a lump sum payment at the end of the policy term. While money-back policies can be considered low-risk investments in terms of the safety of the principal investment, they do not offer high returns compared to other investment options. Additionally, money-back policies typically have a longer lock-in period than other low-risk investment options.
- National Pension Scheme (NPS): The National Pension Scheme (NPS) is a state-sponsored retirement savings scheme in India. It was designed to provide pensions to individuals without any contribution from the individual. The NPS scheme is administered by the Pension Fund Regulatory and Development Authority of India (PFRDA).
- Sukanya Samriddhi Yojana (SSY): Sukanya Samriddhi Account is gaining popularity as one of the best investment plans in India for the girl child. If you have a girl child, this Yojana aims to facilitate corpus creation for the girl child. You can open a Sukanya Samriddhi Yojana account at both commercial banks and post offices. Furthermore, you can avail of significant tax savings under Section 80C of the Income Tax Act 1961.
- Endowment Policy: An endowment life insurance plan is an investment plan that is designed to provide a regular income for the investor. An Endowment policy is a life insurance plan that apart from covering the life of the insured against uncertain death helps to save a certain amount of money regularly over some time. In short, an endowment policy consists of both Insurance coverage and the savings option.
- Senior Citizen Savings Scheme: SCSS, is widely regarded as one of the best investment options in India for a variety of reasons. It offers significant financial security for senior citizens. The interest rate for this scheme is decided by the government every quarter. You can open an SCSS account at post offices and any nationalized banks.
- Fixed Deposits (FDs): Fixed deposits are a popular investment option in India. These are low-risk investments that offer guaranteed returns on a specific amount invested for a fixed period. The returns on FDs are generally higher than that of a savings account.
- Public Provident Fund (PPF): PPF is a government-backed investment scheme that provides a fixed rate of return on the invested amount. The investment is locked in for a period of 15 years, and it can be extended in blocks of five years.
- Post Office Saving Schemes: Post office saving schemes are safe and low-risk investment options provided by the Indian government. The schemes include Post Office Time Deposit, Post Office Monthly Income Scheme, Post Office Savings Account, and National Savings Certificate.
Medium Risk Investment
Medium-risk investments are investment options that have a moderate level of risk and are suitable for investors who are willing to take on a higher level of risk to earn potentially higher returns. Some examples of medium-risk investments include:
- Monthly Income Plans: Monthly income plan is a sort of mutual fund plan, which invests primarily in equity securities with the necessity of generating cash flows and saving capital. MIPs are best suited for retirees who seek a steady income instead of capital gains.
- Arbitrage Funds: Arbitrage funds look for the price difference between the cash and futures markets. These schemes also have tax advantages. Arbitrage funds are taxed like equity schemes.
- Hybrid debt-oriented funds: Hybrid debt-oriented funds are funds that invest in both debt and equity. They are a mix of fixed and variable rate instruments. These funds help the investor to get higher returns by investing in equities and debt instruments. However, these funds have a higher risk than pure equity or pure debt-oriented funds. This is because they invest in both types of assets and hence their performance is more volatile than pure equity or pure debt-oriented funds.
- Real Estate: Real estate is a popular investment option in India, and it can provide stable returns over the long term. Investing in real estate can be a medium-risk option, but it requires a larger investment amount and a longer time horizon.
- Corporate Bonds: Corporate bonds are issued by companies to raise funds, and they offer a fixed rate of return. While they carry a higher level of risk than government bonds, corporate bonds can offer higher returns as well.
High-Risk Investment
High-risk investment plans are suitable for investors whose primary focus is on having high long-term capital growth. Meanwhile, the majority of high-risk investment plans usually incur significant fluctuations but provide opportunities to create lots of potential benefits.
- Unit Linked Insurance Plans: Unit Linked Life Insurance Plans (ULIPs) are a type of life insurance plan where the death benefit is linked to the investment. They are often offered by insurance companies in the form of savings accounts or investment plans. The idea behind Unit Linked Investment Plans-ULIPs is that the death benefit will be paid to your loved ones if you die before your investment matures. However, if you live beyond the maturity date, then you will receive a higher return on your investment than if you had died at any point during the policy term.
- Mutual Funds: Mutual funds are investment plans that invest in stocks, bonds, and other types of securities. They are a good way to diversify your portfolio and reduce risk. The best way to start investing is by opening an account with a mutual fund company. Mutual funds offer a variety of investment options that can suit the needs of different investors. For example, they have conservative or aggressive strategies for people who want to minimize risk and maximize growth potential respectively.
- Direct Equities: Investing in assets such as equities is risky, but has the potential for success. Over the long term, there is evidence to support this type of investment over others. An equity investment is when you buy a share of the ownership of a company. That allows the holder to participate in any gains or losses that the company makes.
Things to Keep in Mind While Investing in Investment Plans
Investing in investment plans is a great way to build wealth and achieve financial goals. However, there are certain things to keep in mind while investing in investment plans to ensure that your investments are aligned with your financial objectives and risk tolerance. Here are some important considerations to keep in mind:
- Define your Investment Goals: Before investing in any investment plan, it is important to define your investment goals. Determine the amount of money you want to invest, the time horizon for your investments, and your risk tolerance level. Your investment goals will help you choose the right investment plan that aligns with your financial objectives.
- Understand the Risks Involved: Every investment comes with a certain level of risk. It is important to understand the risks involved in the investment plan you are considering, and how these risks align with your risk tolerance level. Knowing the risks involved can help you make an informed decision about the right investment plan for you.
- Do your Research: It is important to do your research before investing in any investment plan. Research the investment plan, the fund manager, and the performance of the plan over the years.
- Diversify your Portfolio: It is important to diversify your portfolio to reduce the risk of losses. Invest in a mix of different types of investment plans.
- Keep a Long-Term Perspective: Investing in investment plans is a long-term commitment. It is important to keep a long-term perspective and not get swayed by short-term market movements. Stay focused on your investment goals and have patience as your investments grow over time.
Conclusion
Investing your hard-earned money is a big decision, and you want to make sure that you are making the right choice. With so many investment options available, it can be difficult to determine which one is best for you. However, by taking the time to research and evaluate your options, you can find the best investment plan for your needs. PolicyBachat is an insurance web aggregator which will help you to choose the best investment plan by comparing different types of investment plans in one place.