Savings is a critical aspect of financial planning. Today, there are many savings plans in the market that allow not only you to save money for the long-term needs but also help you grow your money faster. Read on to know more about the benefits of such plans.
A savings plan is essentially a type of insurance policy that allows you to save for the long-term and invest the money in various money market instruments and grow it over a period. Depending on the type of savings plan you choose, you can invest in the plan systematically and in a disciplined manner throughout the policy period and get valuable returns on maturity.
A savings plan not only helps secure your family’s financial future with the death benefit but also allows you to save for your long-term goals like a child’s education, marriage, buying a house, building a retirement corpus, etc. You can choose from a variety of savings-cum-insurance plans like the ULIP (Unit Linked Insurance Plan) and government-backed schemes like the National Pension Scheme (NPS), Public Provident Fund (PPF), National Saving Certificate (NSC), etc.
Now that you know what a savings plan is and the various types of savings plan available in India, it would help to know its benefits.
One of the most significant benefits of a savings plan, apart from helping you save for the long-term goals, is that they help you reduce your tax liability every year. Depending on the type of savings plan you hold, the amount you invest in it is eligible for tax benefit under the Indian Income Tax Act.
For example, if you invest in PPF, you get a triple tax benefit. This means you get tax benefit on the principal amount invested, the interest accrued over the years, and the maturity proceeds you receive at the end of the investment term. Similarly, investments in insurance-cum-savings plan help you get tax benefit on the premium paid to a maximum limit of Rs. 1.50 lakhs in a financial year under Section 80C of the IT Act.
Loan Against Investment
A financial emergency can occur at any time. In such a situation, most people tend to avail unsecured loans like a personal loan. However, personal loans have a higher interest rate, which may further burden your finances. To avoid such a situation, you can avail of a loan against your investment in a savings plan at a much lower interest rate and get funds for your immediate needs.
A lower interest rate also means that the repayment is more affordable. However, you must be aware of the loan-related rules. Most savings plans grant loans only after a specific number of years from starting the savings plan.
Another significant benefit of investing in a savings plan is that it helps you develop regular savings habits. Most savings plans in India allow investors to invest a small amount every month. This means you would automatically set aside the said amount from your disposable income and contribute towards your long-term financial goals.
You can also direct your bank to auto-debit the amount on a specific day of the month and direct the funds towards the investment in the savings plan.
The savings plans give you various attractive investment options in the money-market instruments as per your goal and risk-taking capacity. Additionally, the investments are managed by professional fund managers on your behalf, which means you need not have to keep track of the investment daily and make investment-related decisions. You can define your goals and the risk appetite, and the fund managers will invest on your behalf.
Most investment-cum-savings plans have a history of offering attractive returns in the long-run. The key is to get valuable returns from your savings plan and to remain invested over the long-term through different market cycles.