7 Best Investment Plans & their Benefits in 2022
An investment plan is a financial tool that enables an investor to build long-term wealth and achieve financial goals by investing in a methodical manner. Depending on the type of the plan chosen for investment, you can earn guaranteed returns, market-linked returns, or a combination of both by participating in these plans. Simply defined, an investment plan is one of the most effective and convenient strategies to accumulate wealth over time.
Proper financial planning is essential to generate sustainable wealth in the short and long term. There are many investment plans in India to help you with just this. However, when choosing where to invest, consider your risk appetite and financial goals. Here are seven popular investment options in India to choose from.
1. Public Provident Fund (PPF)
The impact of compounding of tax-free interest is potentially high due to the long tenure of 15 years. A PPF is a safe investment option, as both the principal amount invested, and the interest earned are backed by a sovereign guarantee. The interest rate on PPF is one of the most competitive in the market and is reviewed by the government every quarter. Plus, you get tax benefits under Section 80C.
2. Unit Linked Insurance Plans (ULIPs)
ULIPs offer the dual benefits of life cover and wealth generation in one plan. The premium you pay towards a Unit-Linked Insurance Plan is partly used to provide life insurance, and the rest is invested in an asset class of your choice, based on your risk appetite. You get a balanced investment portfolio based on your risk profile, as well as the benefit of compounding.
3. National Pension Scheme (NPS)
The NPS is a long-term retirement product backed by the government and managed by the Pension Fund Regulatory and Development Authority (PFRDA). It is a safe investment plan that lets you stay financially independent after retirement. You can choose from two options – auto and active. In the auto option, funds are automatically put into different assets, while in the active mode, you choose the assets. It is a mix of corporate bonds, liquid funds, fixed deposits, equity, and government funds, among others. The scheme matures when you turn 60, and the accumulated interest is tax-free.
4. Active Income Plan/Guaranteed Income Plan
You can choose from 2 types of income plans – early income benefit and deferred income benefit. In the former, you receive an income from the 2nd policy year, while in the latter, payment is made after the premium-paying term. These investment plans offer immense flexibility. For instance, Edelweiss Tokio Life Premier Guaranteed Income offers guaranteed returns and life cover. You can add riders such as critical illness, accidental death benefit, and more. The plan offers tax benefits under Section 80C too.
5. Equity Mutual Funds
Equity mutual fund schemes must invest at least 65% of their assets in equity and equity-related assets. In actively managed funds, return potential depends on the fund manager’s abilities. Indexes and ETFs (Exchange-Traded Funds) are managed passively. Portfolio Diversification can be achieved with equity mutual funds. You can also invest in international stocks. With the stock market’s ability to rise in the long term, these mutual funds can provide higher return potential. However, one thing to note is the risk is higher here as compared to other asset classes.
6. Bank Fixed Deposits (FDs)
FDs offer a range of tenures and fixed returns within that period. You can choose the cumulative option, where the interest amount is reinvested and paid at maturity. The non-cumulative option lets you get an interest pay-out, either quarterly or annually. FDs are highly safe investment plans in India, unaffected by market fluctuations. You can choose to invest in tax-saving FDs as well.
7. Endowment Policies
This is a life insurance policy that, apart from providing life cover, also guarantees a lump-sum amount to the policyholder on maturity. You can pay a single premium for the entire term and get an enhanced life cover up to 10 times the premium amount. Endowment policies also offer tax benefits.
Make sure you understand all terms and conditions before investing.