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Factors to Remember When You Select a Savings Plan

A savings plan is a stepping stone for achieving your financial goals and paving the path towards securing your future financially. With proper budgeting and investing, it is possible for each policyholder to self-control their finances, accumulate wealth and build stability over time. ...Read More

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Factors to Remember When You Select a Savings Plan

Key Factors to Consider When Choosing a Savings Plan

Factors to Remember When You Select a Savings Plan
September 05, 2024

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In this blog, we will dive into the details of learning about savings plans, factors to consider when choosing a savings plan and other information.  

What is a Savings Plan?

A savings plan is a financial strategy that entails reserving funds on a regular basis for emergencies or future financial goals. The goal of a savings plan is to assist individuals in reaching particular financial objectives, such as owning a house, college savings, or emergency fund corpus.

Making regular contributions, such as those made on a monthly, quarterly, or annual basis, is essential to a savings plan's ability to build up money over time. Another crucial element is setting up an emergency fund to handle unforeseen costs or financial losses.

It is important to understand that a savings plan comes with several distinctive features meeting the financial needs of individuals by investing as per their risk appetite, needs and preferences. Banks, financial institutions and different government schemes are available for everyone to invest their money and save for future use.

Moreover, purchasing an insurance policy, such as term insurance or life insurance can also act as a savings plan. This is because such insurance helps your family deal with financial situations in case of your untimely demise, providing monetary security for life. Insurance providers in such cases make sure that the premium you paid for a certain sum assured against your term or life insurance policy is provided to the beneficiary, helping them to navigate financial instability in your absence.

7 Factors to Remember When You Select a Savings Plan

Choosing the right savings plan is important towards securing your financial future. With a wide variety of savings plans available, it can be challenging for individuals to select the right one meeting their needs and preferences.

From choosing the right plan to meet long-term objectives to determining prices and flexibility, let us look into the factors to consider when choosing a savings plan.

  • Risk Assessment and Tolerance

Understanding your risk appetite is very important while understanding the factors to choose a savings plan. As a young individual, you may be more inclined towards taking risks on your finances as you have time to recover if you face any loss from them. However, an individual in his middle age or retired can barely think of choosing a risky savings plan.

For them, opting for a risk-free and secured return on savings is the ideal option. However, this might not be the case for all as your financial situation is a big factor in this case. Hence, whenever you look for a plan to invest and save your money, make sure to assess the risk you want to take to ensure your stability in the future.

  • Financial Objectives

Another factor to consider when choosing a savings plan understands your financial objectives. Every investor has a specific set of financial goals and objectives focused on both the short-term and long-term duration. You have to understand why you want to save your money. Your financial objectives can consist of setting up a business, buying a house or car, marriage or use for studies abroad.

Hence, if you know why you want to save money, you can opt for specific savings schemes that can increase your money accordingly. For instance, if you want to build a retirement corpus, you can opt for a low risk investment plan but if you want to buy a car within 3-4 years, you may be prone to taking risky investment opportunities.

  • Investment Duration

Investment plans should be chosen according to the tenure of your financial goals and objectives. There are various savings plans available catering to both short-term and long-term needs and preferences of individuals. The investment duration is also decided by the savings amount an investor makes. Begin your savings in small amounts as both earnings and savings fluctuate with the age of a person.

  • Long Term Goals

While choosing any investment plan, make sure to stay focused on your long-term goals. The goals might include funding your child's education, and purchasing your dream house and savings to lead a relaxing and comfortable life after retirement.

Opting for a good savings plan will let you build your corpus over time and achieve the desired goals smoothly. A significant amount of money is associated with long-term goals. Hence, it is essential to choose the plan that offers your safety and high returns upon maturity. When you are determined on your ultimate goal, it becomes easy to determine other alternatives for tax-saving investments.

  • Key Features of the Savings Plan

Different savings plans have different distinctive features. An appropriately chosen savings plan allows you to withdraw a certain portion in the short term while keeping the remaining amount to meet emergency expenses with additional benefits. There are savings plans with a fixed tenure ranging between 5 to 10 years or even 30 to 35 years.

Thus, choose the savings plan that provides your comprehensive coverage with alternatives and financial protection. However, looking into the plan's advantages and disadvantages is also crucial before choosing the right one. An investor should construct a portfolio with diversification.  

  • Flexibility of the Savings Plan

When investing for the long term, looking into the flexibility of a savings plan is essential. The flexibility of the plan means whether the invested amount can be withdrawn in the short run during emergencies. Thus, there will be less risk associated with a savings plan. However, for any tax-saving investment savings plan, it will be beneficial to hold on to the plan for a prolonged period to yield better returns on maturity. Before choosing and finalising any investment scheme, make sure to read the terms and conditions thoroughly.

  • Cost of the Savings Plan

The handling expenses of a savings plan are minimal for every individual investor. If an investor gives away all capital as expenses, the accumulated capital will automatically reduce in the future. Hence, choosing the right savings plans and understanding their prices and charges is crucial. Moreover, the long-term impact associated with these prices is quite less, thereby making it a suitable approach for building wealth at a convenient price. This way you can accumulate wealth in the future.

With a proper understanding of the costs of a savings plan and choosing the right plan with fewer expenses, you can reach your saving potential and make a well-informed decision in the long term. 

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Advantages of Choosing Saving Plans

Now that you know the factors to consider when choosing a savings plan, it is important for you to get an idea about the benefits of choosing savings plans. Choosing the right savings plan is crucial to build up your financial well-being. The right plan is beneficial for providing tax benefits and the growth potential steadily over the years.

This let us explore the advantages of choosing an accurate savings plan and building a strong financial foundation for the future.

  • Coverage and Pay-outs

A savings insurance plan is a type of insurance plan, that provides comprehensive insurance coverage during times of need. However, apart from offering insurance coverage, you can also avail of maturity benefits. Additionally, it offers financial protection to you and your family if any emergency scenario arises. With compulsory pay-out from the plan, you can fulfil the dreams of your family and let them reach their desired goals.

  • Boosts Financial Planning

With gradual progress in life, we keep on targeting certain financial goals for ourselves. However, there exists proper financial planning behind these goals. By investing in a convenient savings insurance plan, you can reach the desired goals. For example, some savings plans help you to save for the future and provide financial backup during times of need, be it education expenses, medical urgency, or providing best-in-class education to your child and others. Make sure to compare the different available plans to meet your financial objectives and choose the one that suits your requirements.

  • Adds Flexibility

Each person can have different life goals with objectives. The majority of savings plans are designed to cater for the needs and preferences of individual investors. Each of them consists of distinguishing features. If you are choosing a long-term plan, look into a flexible plan.

With a flexible investment plan, you can withdraw the amount in the short term and ensure safe and secure financial conditions. Moreover, choose a plan where you can make changes in your investment choice considering your financial requirements and changes in risk appetite.

  • Provides Tax Benefits

A savings insurance plan is a specific category of insurance plan and thus it provides the policyholder to experience tax benefits. With the right savings insurance plan, opt for a tax deduction of up to Rs. 1.5 Lakh towards your payment of premium amount, under Section 80C of the Income Tax Act**.

Additionally, the death benefits and benefits from maturity are exempted from taxation as applicable under Section 10(10D) of the Income Tax Act**.

FAQs on Factors to Consider While Opting for a Savings Plan

1. What should I consider before choosing a savings plan?

Before choosing a savings plan, make sure to consider your financial objectives, the tenure of the investment plan and flexibility with the prices of the plan chosen. Proper evaluation of the tax benefits plan with potential returns and risk assessment is crucial to achieving long-term goals.

2. What factors matter when choosing a savings plan?

When choosing a savings plan, checking its guaranteed returns upon maturity is a must. Alongside, also check out the factors such as its online availability, flexibility, tax savings status, and the protection it provides towards financial security.

3. How does risk tolerance influence my savings plan choice?

Because of the risk tolerance factor, you can choose the best investment strategy for optimising returns while managing risks. Alongside this, it also enables individual investors to reach an informed investment decision-making aligning with the desired financial goals and objectives.

4. Why are financial goals important in selecting a savings plan?

Financial goals are important in selecting a savings plan because it provides a lot of clarity. Alongside, setting the right financial goal provides a clean roadmap thereby letting individuals reach their financial objectives.

5. How does investment duration affect my savings plan?

Investment duration provides a deep impact on your savings plan influencing the returns and growth of your funds. With long tenure, you can experience the power of compounding thereby leading to a great accumulation of wealth. Alongside, it needs a longer commitment to select the right duration aligning with your financial goals.

Conclusion

To conclude, choosing the right savings plan is so crucial that it is never too late to begin to achieve financial goals and life objectives in the future. Irrespective of age group, opening a savings account is important for all to achieve life goals with ease. Once you understand the factors to consider when choosing a savings plan, make sure to examine your needs and objectives before implementing any savings strategy.

Selecting the savings plan carefully allows you to maximise the benefits attaining both growth and security over time. Ultimately, it is the savings plan that lets you reach your financial goals with confidence attaining a separate peace of mind.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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** As per Income Tax Act, 1961. Tax benefits are subject to changes in tax laws. The afore stated views are based on the current Income-tax law. Also, the customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

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