Saving Plan

The savings plan offers various features that help to meet the specific financial need of the individual by making the investment as per one's own suitability and risk appetite.

Along with the benefit of wealth accumulation, the savings plan also offers the advantage of insurance coverage. Under the savings plan, a death benefit is paid to the beneficiary of the policy in case of an unfortunate demise of the insured during the policy tenure.

Savings plans are introduced by the Indian Government or the public sector banks or financial institutions. The main advantage of the savings schemes is that they're backed by the Government, thereby catering to the complete security and safety of the interested capital. Moreover, they are low-risk financial instruments and, at the same time, offer good returns.

Best Savings Plans in India

Key Features of Savings Plan

Here are the main highlights of savings plans and why one should consider buying them over any other plan in the market.

1. Flexible Premium Returns

   Premiums under the savings plan can be paid annually, semi-annually, quarterly, or monthly as per the convenience of the policy holder.

2. Maturity Benefit

   Under the savings plan, maturity benefits are guaranteed that offer certain fixed savings to the policyholder. Additional maturity benefits are also available in some savings plans that help the policyholder achieve the desired financial corpus.

3. Life Cover

   A savings plan is also known as a life cover plan. It offers life coverage and financial security to the family even after the untimely demise of the policyholder.

4. Guaranteed Returns

   The returns under the savings plan are risk-free as they are guaranteed. It means that the policyholder will be provided with the amount promised during the policy inception only if all the premiums are paid till date.

Benefits of Having a Saving Plan

The following are the benefits that the policyholder will get if they opt for a savings plan:

1. Tax Benefit

   All the saving plans offer tax benefits under Section 80C of the Income Tax Act, 1961. Along with Section 80C deductions, some of the top saving plans also provide maturity benefits under Section 10(10D) of the Income Tax Act.

2. Financial Protection Benefit

   Financial protection is provided to the policyholder and their dependents during the policy tenure under a savings plan. Even if the policyholder passes away untimely during the policy tenure, the financial burden is taken care of by the plan that lets them lead a financially independent life.

3. Retirement Benefit

   A savings plan helps in building a financial corpus for the policyholder even after retirement. With the help of a savings plan, one can save a small amount at the regular intervals that will accumulate into a larger sum, helping you at the time of retirement.

Important Factors to Consider While Investing in Saving Plans

In order to live a stress-free life and to deal with the eventualities of life, it is very important to do proper financial planning. The best way to ensure a financially secured future is to start saving regularly from a young age. By making an investment in the savings plan, an individual can create a financial cushion for the future and can also avail of the benefit of tax savings. However, there are certain factors that should be considered while making an investment in savings plans.

1. Risk Profile

   It is important to determine one's risk appetite to find the best saving plan. Age and personal factors are important determinants of the kind of risk one can take. Generally, young people in their 20s and early 30s can opt for the higher risk but lucrative return options. They can choose investment plans which are more aggressive – those which invest one's money more in the equity segment of the stock market and lesser in debt. A Unit Linked Insurance Plan (ULIP) is more suited for young customers who are willing and able to take such financial risks. On the other hand, a traditional endowment or a money-back plan is better suited for the needs of a conservative investor, who prefers to have the guarantee of the money being secure even though it generates lower returns.

2. Investment Tenure

   Saving plans offer a mid-to-long-term investment horizon and serve as one of tax saving investment options. The ULIPs are very good as they help build up a significant corpus over the life of the policy. The insured party can start with a small premium amount and build it up over the policy tenure. This is possible as most insurance companies understand the fluctuating nature of earnings and savings depending on the age of the investor and provide options where the premium and the investment amount can be increased or decreased as per the person's convenience.

3. Final Goals

   One should be clear about the reason for selecting a savings plan. The final objectives help in determining tax-saving investment options. Goals range from building a corpus for retirement or having sufficient money for a child's higher education or marriage to building a house.

4. Plan Features

   Different plans have different features. The best tax-saving investment plans allow one to make partial withdrawals by surrendering a certain portion of the policy while retaining other benefits. Some investment options have a fixed cover ranging from 5/10 years to 30/35 years, depending on what one wants. Others provide cover for their entire life. With comprehensive coverage and flexible options, one can enjoy protection as well as growth through savings. Some plans also offer bonuses, the amount of which is decided by the insurance companies based on the performance of their investments in the market.

5. The Flexibility of the Plan

   For long-term goals, this plan allows one to take care of unexpected short-term needs. They offer the flexibility of surrendering the policy if the situation so demands. However, it is better to stick with the tax saving plan for the longer term so that they give better returns.

6. Charges of the Best Saving Investment Plans

   Understanding the costs and charges involved is vital when selecting a saving plan in India. These best savings plans have minimum charges and provide flexibility in terms of cash withdrawal, bonus receipt, and term of the policy. Also, the long-term effect of these charges is much less and makes a tax-saving investment plan a great way to increase wealth at a low cost.

How to Compare Saving Plans in India?

A lot of saving plans in India also work as a tax-saving investment option. Investors can compare these plans online and get the best savings-investment plans, which they need to use as their personalized money-saving plan. You can use an investment calculator to calculate your priorities, such as making a tax saving investment along with putting your money in one of the better saving plans in India. Here are the following points one should consider while comparing saving plans in India:

1. Premium Amount

   It is of utmost importance to choose a savings plan that fits into your budget. A savings plan that fulfills the requirements of the policyholder and at the same time does not overburden them financially is the best kind of plan.

2. Size of Life Cover

   Another important factor taken into consideration while comparing different saving plans is the life cover offered under them. The more life coverage provided under the plan, the better it is for the policyholder.

3. Company's Background

   A savings plan is a long-term plan and hence requires involvement with the provider company for a longer tenure than usual. It is important to check the company's background, stability, financial position in the market, and authentication before putting in your hard-earned money to protect yourself and your family from any potential frauds in the future.

Factors Affecting the Premium Amount of a Savings Plan

There are 2 ways by which a policyholder can choose to pay their premium amount of the savings plan:

• Regular intervals

• Lump-sum

A policyholder can opt for either of the 2 ways of the premium payment amount, depending upon their financial condition. Even though one can choose either option for payment of premiums, the premium amount of the savings plan depends upon the following factors:

1. Duration of the Savings Plan

   The duration of the policy tenure plays a vital part in the premium amounts of the savings plan scheme. The premium amount varies if the duration of premium payment is short-term from long-term premium payment tenures.

2. Source of Income of the Policy Holder

   The job history and the job type of the policyholder affect the premium amount allocated to them by the insurers of the savings plan. If the job of the policyholder involves high risk-taking ability, the premium of the savings plan tends to be more.

3. Future Goals

   The future goals and ambitions of the policyholder directly affect the policy premium payment of the savings plan. For example, if the policyholder wishes to have a financial corpus 20X more than the actual amount invested after the completion of the tenure, then the premium amount rates will be higher than normal.

4. Health History of the Policy Holder

   Sometimes, the insurance providers check the medical history of the person willing to purchase their savings scheme. If there are any medical issues, then the amount of premium generally becomes higher.

Types of Savings Plans

There are several savings plans available in the market, from low-risk to high-risk involvement, depending upon the requirement and financial condition of the individual. Here are some savings and income plans available for Indians:

1. ULIPs (Unit Linked Insurance Plans)

   A ULIP is a type of life insurance product that combines the safety of insurance protection with wealth creation opportunities. A part of the investment goes towards providing life cover, and the residual portion is invested in a fund that invests in stocks or bonds. ULIPs are the easiest and best investment plans in India for a person to enter the stock market with the added advantage of life cover. As these products provide tax benefits and market-linked returns, they are one of the investment options for the long term.

   ULIPs offer many investment funds to choose from, which allow the flexibility to shift between equity and debt based on the market conditions and one's risk profile. ULIPs are structured in such a way that the protection and the savings elements are easily distinguishable and hence, can be managed according to one's specific needs. This way, ULIPs offer unprecedented flexibility and transparency.

2. Money-Back Plans

   Money-back life insurance policies are popular as they offer the dual benefit of insurance and redemption of money at regular intervals. These plans are meant for individuals who require money at certain intervals in their lifetime to meet fixed short-term and long-term financial requirements such as buying a car or house.

   A portion of the sum assured is paid out at regular intervals in a money-back policy. If the policyholder survives the term, he gets the balance sum assured in the best saving plan. In case of death over the policy term, the beneficiary gets the full sum assured irrespective of the payouts already made. The bonus is also calculated on the full sum assured and not the balance money left. Because of these two reasons, premiums on money-back plans are higher than the endowment plans.

3. Endowment Plans

   Endowment plans are regular saving plans which help build a corpus and give guaranteed maturity benefits along with bonuses. The product is the best saving plan in India as they give returns that are equivalent to a fixed yield or deposit. In addition, they also combine insurance risk cover with add-on riders to primarily build a safety cushion in case something goes wrong. They are clearly among the best investment options available to people looking for insurance cover as well as investment and saving plans in India.

   An endowment policy covers risk for a specified period at the end of which the insured receives the sum assured plus all accrued bonuses. They are considered highly expensive (considering the annual premium payment) as compared to a term or whole life plan. If the policyholder dies during the policy term, then a payout of the sum insured along with the bonus is issued immediately to the beneficiary.

4. National Savings Certificate (NSC)

   The National Savings Certificate is a government-initiated savings scheme, which is a fixed income investment plan that can be opened with any post office. Along with the benefit of wealth accumulation, the investments made towards NSC up to the maximum limit of Rs.1.5 lakhs are eligible for tax exemption U/S 80 C of Income Tax Act. 

   National Savings Certificate is best suited for mid-income investors who have a low-risk appetite. NSC is similar to other fixed-income investment options such as Public Provident Fund (PPF) and Post-Office Fixed Deposits.

5. National Savings Scheme (NSS)   

   National Savings Scheme is a government-backed savings scheme wherein a total sum assured amount is paid after the completion of its maturity tenure. Moreover, the applicable interest rate is compounded annually. The interest rates offered by NSS are updated and revised on a quarterly basis, and it also provides the flexibility to increase the scheme's tenure as per the investment objectives. Along with the benefit of creating a financial cushion for the future, the investors can also avail the advantage of tax exemption under Section 80C of the Income Tax Act.

6. Public Provident Fund (PPF)  

   Public Provident Fund is a long-term savings scheme introduced by the National Saving Organization, which offers a term period of 15 years. As one of the safest options of investment, PPF offers a fixed interest rate of 7.9%. The interest earned on PPF is tax exempted, and the contribution made towards the PPF account up to the maximum limit of Rs.1.5 lakhs is tax exempted under section 80C of the IT Act. PPF also offers flexibility as it can move from one bank and post office to others. One can make a minimum contribution of Rs.500 and can invest up to a maximum of Rs.1.5 lakhs.

7. Post Office Savings Scheme

   As one of the most reliable and secured saving plans, it is best suited for investors who have a low-risk appetite. Along with the benefit of higher return, the post-office savings scheme is easy to access and hassle-free. One can also open a POSS account in the name of the minor. With an interest rate of 4%, this saving plan is best suited for individuals who do not have a high-risk appetite.

8. Senior Citizen Savings Scheme (SCSS)

   A senior citizen savings scheme is specifically introduced, keeping in mind the needs of the senior citizens in India. This saving scheme can be availed by an individual at least 60 years of age. However, individuals whose age ranges from 55 years-60 years and those who have opted for voluntary retirement schemes can also open senior citizen savings schemes. Along with the benefit of financial security after retirement, the SCSS also offers the benefit of tax exemption under section 80C of the Income Tax Act.

9. Sukanya Samriddhi Yojana (SSY)

   Sukanya Samriddhi Yojana is a savings scheme introduced by the Indian Ministry of Finance. This scheme was specifically introduced with an objective to secure the financial future of the girl child so that she can achieve the future milestones of life. 

   Sukanya Samriddhi Yojana offers an annual interest rate of 8.1% on the principal amount. One can open an SSY scheme at any post office or authorized bank in India. One can make a minimum investment of Rs.1000 and can invest up to a maximum of Rs.1,50,000 in a financial year.

10. Atal Pension Yojana

    This is a government-initiated savings scheme that is specifically designed to provide benefits to the weaker section of society. Individuals who are working in unorganized sectors and those who need financial support from the government-sponsored welfare program can invest in Ata Pension Yojana. Individuals between the age group of 18 years- 40 years are eligible to apply for this savings plan. The premium rate of this saving plan is very low, and the pension is provided to the individual post-retirement years.

11. Employee Provident Fund (EPF)  

    Introduced by the Employee Provident Fund Organization (EPFO), Employee Provident Fund is a savings scheme wherein the salaried individuals are obligated to make a financial contribution to the Provident Fund (PF) account. With the help of EPF, individuals can plan to make smart retirement planning and ensure they have a financially secure future after retirement. In EPF, the employer and the employee make an equal contribution toward the scheme. 12% of the employees' basic salary is contributed to the scheme, and a similar amount is contributed by the employers towards the EPF account. The annual interest rate applicable to the contribution made towards the EPF account is between 8%-12%.

12. National Pension System (NPS)  

    National Pension System is a savings scheme that focuses on providing a secure source of monthly income after retirement. In order to avail of the benefits offered by the NPS scheme, the employees have to make a small contribution as a premium payment towards the scheme while being employed. The lump-sum fund accumulated throughout the entire tenure of the scheme is broken down as annuities and is paid to the applicant every month post-retirement.

Things to Avoid When Investing in a Savings Plan

1. Over Exposure to Single Market Instrument

   The old idiom to avoid putting all eggs in one basket holds true for investing in saving plans as well. One should avoid over-exposure to a single market instrument. It is wise to spread investment across a range of investment instruments to hedge against extraordinary loss in a particular instrument.

2. Over Investing

   Over investing can burden finances for present needs. Many times people invest more than what they can comfortably put aside for meeting regular expenses, resulting in the cancellation of policies. The cumulative effect of such cancellations is the loss of hard-earned money in penalties.