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Double-checking your locks to guarantee safety is a habit we generally develop to ensure that our homes are locked properly while we are away. So, why not develop it with your investments?
Savings is a habit you need to develop much like your daily chores. It is the first step, after you start earning, to build a better future. Earning without saving is going to make it difficult for you to sustain your lifestyle and meet bigger financial goals in life. For a few financial goals, you must use a guaranteed savings plan.
And, saving seems incomplete without investing. Here’s why…
Saving vs Investing
Saving and investing must go hand in hand if you wish to succeed with your financial goals. However, both activities have a lot of differences. The following table will help you understand the major difference between the two, which will further lead you to create a solid financial plan with the best saving scheme:
|
Saving |
Investing |
| You can start saving if you are spending money | You can start investing only if you have savings |
| Savings usually do not have investment risk and provide high liquidity
Since savings are almost risk-free and highly liquid, they offer little growth over time |
Investments will carry risk based on the type and asset class, liquidity will also vary based on the investment type
Usually, the higher the risk the higher the return, but with time |
| Savings ensure safety against contingencies and unforeseen expenses | Investing ensures long-term wealth creation and financial independence |
| Savings plans in India include savings accounts, fixed deposits, recurring deposits, payment banks, small saving schemes | Investment plans in India include Mutual funds, life insurance plans, ULIPs, PPF, NPS, NCS, etc. |
| Useful for funding short-term and small goals, like, lifestyle purchases, emergency funds, term and health insurance plans | Necessary for funding important, expensive and long-term goals such as a child’s higher education, marriage, home purchase, retirement goals |
Why Invest your Savings?
Saving is great until you have sufficient money to sustain your life during short-term financial emergencies. For instance, if you want to maintain an emergency fund equal to 6-month expenses, you need to save about 1.8 lakhs if your monthly expenses are Rs 30,000.
After saving this amount you save Rs 30,000 p.m. for the remaining 6 months of the year. If you invest these new savings at 8% p.a., after one year the difference between your savings and investments will start to show up:
| Purpose | Initial Corpus | After 1 year of Interest | After 1 Year with Inflation (5% p.a.) | Added Value |
| Emergency Fund (6 months exp.) | 1,80,000 | 1,86,300
(@ 3.5% p.a.) |
1,89,000 | (2,700.00) |
| Investment (6 months’ savings) | 1,80,000 | 1,94,400
(@ 8% p.a.) |
1,89,000 | 5,400.00 |
As you can see, your expenses will increase with inflation every year. Thus, for your emergency savings to keep up you will need to save more money every year.
However, your invested sum will grow more than inflation. Thus, adding value to your wealth with time. This is a simplified example of why investing is important after you have saved enough money.
Also, don’t forget to add financial safety measures such as term insurance and Mediclaim to your savings portfolio. These plans will have a nominal cost for you but will guarantee long-term financial safety for your family.
How to Invest with Guaranteed Benefits?
While rewards in investments are limited by the potential risk you can take. The risk on the other hand is offset by your ability to stay invested for a longer tenure. However, a few saving plans in India offer guaranteed benefits on your long-term investments.
With these plans, you not only enjoy the safety of your invested money but also guarantee to beat inflation. All this while you guarantee the funds to your family in any situation.
Savings insurance plans offer the following guaranteed benefits to help you beat inflation and ensure financial stability for your family:
- Life Cover for the Policyholder: If you are the primary breadwinner of the family, their financial stability depends on you. Added life cover of the plan adds to their financial safety after you.
- Guaranteed Maturity Value: The funds available to you at the end of the investment plan are guaranteed and known to you in the beginning.
- Limited Premium Payment: Guaranteed saving plans allow you to invest for a limited period. For example, you can invest all your premiums for a 10-year saving plan within 5 years or even in a single instalment.
This option will free up your savings for other important goals.
- Premium Protection for Payor: This benefit guarantees the maturity value to the family even after your untimely demise. The insurer will continue to invest your remaining premiums in the case of your death before investing all premiums.
Thus, your family receives the guaranteed life cover benefit upon your demise, but they will also receive the maturity amount.
- Investment is Tax-Free: The annual premium you invest in the plans allows you a tax deduction of up to Rs 1.5 lakhs every year under section 80C.
More importantly, the payments you or your family will receive from the plan will also be tax-free under section 10(10D). Thus, the guaranteed saving plans offer safety to your investment from inflation and taxes both.
Guaranteed Savings Plan in India
iSelect Guaranteed Future by Canara HSBC Life Insurance offers all the benefits you need in your ideal guaranteed saving plan. The plan also offers benefits which make it suitable to fulfill the most important financial goals for your family:
- Child’s higher education goal
- Daughter’s marriage goal
- The retirement goal for spouse
- Financial support for a dependent family member
The plan gives you the option to receive a regular annual sum after your premium payment term. While this feature ensures higher liquidity, aligning your child’s higher education and marriage goals will allow you to fulfil both with a single plan.
You can use the annual cash flows to pay for the education while the maturity value funds the marriage goal. All this while your family has the guarantee of receiving these benefits exactly as you have deemed them, even if anything happens to you.
