Investment Plans

Investment Plans

Investment plans are ideal if you are looking to build capital over time towards fulfilling short-term or long-term financial goals. These plans are designed so that a part of the premium paid is used to provide insurance coverage, while the remaining is invested in a financial instrument. The amount invested primarily depends on policyholders’ risk-taking capacity.

How Do Investment Plans Work?

Investment is done with a financial goal that helps in generating income and accumulating a corpus over a period of time. These investments can include bonds, stocks, fixed deposits, provident funds, among others, which can substantially grow savings to act as a fallback option upon retirement or for an additional source of income.

However, investments, while growing money, are generally accompanied by risks. Market-linked investment plans tend to have a higher risk-return profile. Depending on how the stocks perform in unit-linked funds and income from bonds and deposits made, investors receive returns that they can use to cover financial obligations as needed.

Importance of Investment Policies

• Investing a part of your income or savings can help create a budget for monthly expenditures, bills, and taxes.
• Financial planning is crucial to increase savings and work effectively towards financial goals.
• Investments create opportunities to cover unexpected expenses related to healthcare, education, etc.
• They offer financial security to investors and their families.
• Investments, in the long run, can be switched to a regular source of income upon retirement.

Benefits of Buying Investment Plans

1. Financial Protection

Short and long-term goals such as a child's marriage, education, retirement, etc., can be fulfilled with careful investment planning.

2. Good Returns

Returns on investment plans are often better, especially in Unit-Linked Insurance Plans, when considering post-tax yields compared to other options.

3. Tax Benefits

Premiums paid are eligible for tax deductions under Section 80C, and maturity proceeds are tax-free under Section 10(10D) of the Income Tax Act. Note that tax exemptions vary by plan, so careful evaluation is advised.

4. Rider Benefits

You can add riders like Critical Illness, Accidental Death, and Waiver of Premium to enhance coverage.

5. Loan Facility

Loans can be availed against investments if funds are needed later. Interest rates vary by company.

6. Dual Benefits

Investment plans offer dual benefits: saving for future needs and wealth creation through market investments.

Best Investment Options in India

The table below lists some of the best investment plans offered by life insurers in India.

Last Updated on April, 2022

Investment Plan Companies

Meet your investment needs with the IRDAI-approved investment plan companies listed below.

Types of Investment Plans

Investing should be made a habit, especially if you are a young individual with a regular source of income. Be it a simple life insurance plan, a provident fund, ULIP, or a regular systematic investment plan, you need to start planning to build wealth.

The internet is abundant with information on various investment vehicles that you can leverage for a financially secure future. Let's discuss some of the best investment options available in India.

1. ULIP (Unit Linked Insurance Plans)

If you are on the lookout for a comprehensive option that covers insurance, wealth creation, and saves tax all in one, ULIP should be your priority. Policyholders pay either a monthly or annual premium. A portion of this premium is used for life cover, while the remainder is invested in market-linked funds such as equities, bonds, debts, or mutual funds.

2. Endowment Plans

An endowment plan pays out the sum assured as a lump sum even if the policyholder survives the plan's tenure. It helps build a substantial corpus upon maturity, along with offering tax benefits.

ULIP vs. Endowment Plans

Last Updated on April, 2022

3. Money-Back Plans

Money-Back plans combine insurance and investment, offering death benefits along with a percentage of the sum assured as periodic returns.

Policyholders pay premiums for a specified period, after which they receive periodic payouts. This plan allows you to save and receive funds when needed. Survival benefits often include accrued terminal bonuses.

4. Fixed Deposits

Fixed deposits (FDs) are among India's oldest and most convenient investment plans. The principal amount is generally free from taxation, and the interest rate remains constant throughout the tenure. FDs are a safe option for risk-averse investors.

Loans can be availed against FDs, typically up to 90% of the deposit amount. The loan tenure cannot exceed the FD tenure.

However, FDs have recently seen a decline in popularity due to reducing interest rates.

5. Bonds

Bonds are a form of debt investment where investors lend funds to banks or government entities. The issuer is obligated to repay the debt with interest. Interest from government-issued bonds is typically taxable.

6. Public Provident Funds (PPF)

Introduced in 1968, Public Provident Funds (PPFs) remain a highly sought-after savings and investment vehicle in India. Attractive interest rates and tax-saving benefits are key reasons for their popularity. The invested amount and interest earned are protected by the Indian sovereign.

PPF allows withdrawal facilities from the 6th year of investment. A loan, at a rate of 2% per annum above the interest paid, can be availed from the 3rd to 5th year of investment.

7. National Savings Certificate (NSC)

Issued in denominations of Rs. 100, Rs. 500, Rs. 1,000, Rs. 5,000, and Rs. 10,000, National Savings Certificates (NSCs) are government-backed, tax-saving investment instruments. These paper-based deposits are issued by Post Offices upon making a suitable deposit. Compounded annually, the interest rate for NSCs changes as per Ministry of Finance regulations. NSCs are attractive as the accrued interest is virtually tax-free, and there is no cap on the maximum investment amount. They can also be used as collateral for loans.

8. National Pension Scheme (NPS)

The National Pension Scheme (NPS) is a long-term, post-retirement investment option managed by the Pension Fund Regulatory and Development Authority (PFRDA). Initially for government employees, it is now available to all citizens. NPS funds are exempt from taxation on withdrawals as per the Direct Taxes Code.

9. Mutual Funds

Mutual Funds are investment plans where an Asset Management Company (AMC) pools funds from investors and invests them in bonds, equities, or securities. We will discuss Equity Mutual Funds and Debt Mutual Funds, both offering potential for high returns.

10. Equity Mutual Funds

In an equity mutual fund scheme, investors' capital is invested in company equity stocks. The Securities and Exchange Board of India (SEBI) mandates that an equity mutual fund scheme invest a minimum of 65% of its total assets in equity and related instruments.

11. Debt Mutual Funds

Debt mutual fund schemes are suitable for those seeking steady returns and are generally less volatile than equity funds. They primarily invest in corporate bonds, government securities, treasury bills, commercial paper, and other money market instruments that generate fixed interest.

However, debt mutual funds also carry interest rate and credit risks.

12. Tax Saving Mutual Funds

Equity Linked Saving Schemes (ELSS) are currently the only tax-saving mutual fund option available. The entire invested amount under ELSS is tax-free. It has one of the lowest lock-in periods, capped at three years, and requires a minimum investment of Rs. 500.

Short-Term Investment Plans vs. Long-Term Investment Plans

In financial terms, an investment made for up to one year is known as a short-term investment, while long-term plans extend beyond one year. In the table below, we have categorised the investment options discussed above into short-term and long-term investment plans.

Last Updated on April, 2022

Key Features of Investment Plans

• Most investment plans in India offer accrued loyalty bonuses and annual additions.
• Premium payment is flexible, with options for yearly, half-yearly, quarterly, and monthly payments.
• Risks associated with market-linked funds are primarily borne by investors.
• Most investment plans offer the dual benefits of life cover and financial protection.
• Additional riders can be availed to enhance coverage.
• The power of compounding is the primary driver of investment returns.

Investment Plan Riders

Here are some common investment plan riders:

• Accidental Death Rider: This rider provides an additional sum assured to beneficiaries if the policyholder dies due to an accident.
• Permanent Disability Benefit Rider: This add-on covers the policyholder in case of permanent disability resulting from an accident.
• Critical Illness Rider: This rider offers additional cover if the policyholder is diagnosed with pre-specified critical illnesses like cancer, heart attack, kidney failure, stroke, or paralysis.
• Waiver of Premium Rider: If policyholders lose their income due to disability, this rider waives all future premiums without affecting policy benefits.
• Accelerated Death Benefit Rider: This rider covers terminal illnesses like AIDS, cancer, Ebola, or leukemia, paying a portion of the sum assured in advance, with the remainder paid to the nominee upon death.

Factors to Consider Before Choosing an Investment Plan

Consider these critical factors that you should compare before making a decision that aligns with your investment goals:

• Returns on investments compared against a benchmark.
• Associated risks for each investment plan.
• Dual benefits of life cover and savings.
• Flexibility in premium payment.
• Choice of payout (lump sum or installments).
• Range of riders for enhanced life coverage.
• Reliability of the fund house.

Deciding the Right Cover

The amount of information available today is vast. It is crucial that you filter out the most relevant options. To get the best investment option and the right amount of coverage, we suggest you utilize online portals that allow you to compare investment plans from the comfort of your home. These portals provide accurate quotes and competitive prices to help you make the right investment.

Analyze Your Risk Profile

Determine your risk tolerance. If you are risk-averse and seek guaranteed returns, opt for low-risk plans. If you are patient with market fluctuations and willing to wait for better fund performance, consider market-linked financial instruments.

Determine Your Budget

Identify the amount you can comfortably invest each month. Begin with smaller investments to gain experience.

Define Your Goals

Having a clear purpose for your investments is crucial. Determine if your goal is short-term, long-term retirement planning, or other financial obligations. Defining your financial goal will provide clarity on the most suitable investment plan.

Buy Investment Plans from PolicyX.com

• Compare plans from top insurance companies on PolicyX.com.
• Choose a plan that suits your requirements.
• Fill out the proposal form with basic information.
• Upload your documents online.
• Make the payment using your preferred mode.

Claim Process

In the event of the insured's death, nominees should inform the insurer, providing details such as the time, place, and cause of death.

1. Submit required documents and proof to the insurance company, including the Life Assured's death certificate and the claim form.
2. Additional requirements may include post-mortem, hospital, and attending doctor's reports.
3. For cases involving police inquiries, an investigation/survey report will be required.
4. Following the investigation, the insurance company will approve or disapprove the claim.
5. The decision will be communicated to the claimant.

Upon plan maturity, policyholders are entitled to receive the benefits outlined in the investment plan, along with any accrued bonuses. Investors should contact their respective life insurance companies to file a claim.

Documents Required to Buy Online Investment Plans

• Age Proof: Birth Certificate, 10th or 12th mark sheet, Driving License, Passport, Voter ID (any one).
• Identity Proof: Driving License, Passport, Voter ID, PAN Card, Aadhaar Card (to prove citizenship).
• Income Proof: Income proof specifying the applicant's income.
• Address Proof: Electricity Bill, Telephone Bill, Ration Card, Driving License, Passport (should clearly mention permanent address).