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Who Should Invest in Savings Plans?

A savings plan is a financial product that allows you to save money for the future in a systematic manner while also providing comprehensive life coverage. These plans cater to the needs of individual investors, from those beginning their investment journey to those planning for retirement. People with a steady and stable source of income can invest in savings plans to achieve their financial goals.

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Who should invest in savings plans
Investment plans

Who Should Consider Investing in Savings Plans?

Who should invest in savings plans
October 15, 2024

Table of Content

 

A savings plan provides guaranteed returns, thereby making it a low-risk investment option to grow your wealth over time.

Continue reading this blog to learn about savings plans, who should invest in saving plans and more.

Types of Savings Plans

Savings plans are financial instruments designed specifically to let individuals set aside funds to meet their desired financial goals and objectives. Different savings plans cater to varying needs of individuals, such as retirement, education, emergency funds, etc.

Here is a detailed overview of the different types of savings plans in India:

  • Endowment Plan

An endowment plan is a life insurance policy that provides investors with a lump sum on maturity in addition to accumulated bonuses. Thus, this plan enables a policyholder to build a savings corpus over time and provides financial support and stability to family members during any unfortunate incident. An endowment plan also offers comprehensive life coverage offering a predetermined sum assured.

By opting for this plan, you can save at regular intervals to accumulate a large corpus at maturity. If the policyholder survives the policy tenure, a lump sum amount which includes your principal investment, guaranteed returns and bonuses. If there is a sudden death, the nominee receives a fixed death benefit.

Thus, an endowment policy is an ideal option for meeting your financial goals, such as your child's marriage expenses, educational expenses, purchase of a dream house, retirement planning, and so on.

  • Money Back Plans

A money-back plan is a type of life insurance savings plan that allows you to save your money and pays you a certain percentage of the benefit at regular intervals during the policy tenure. In this plan, a certain amount of the sum assured is paid out during the policy tenure, while the remaining sum is paid out on maturity.

The only difference that exists between the money back policy and other savings plans is that the sum assured and the accrued bonuses will be provided as death benefits, even if the sum assured is paid out already during the policy tenure.  This, however, only considers the sum assured and accrued bonus until the policyholder's demise.

  • Unit Linked Insurance Plans (ULIPs)

Unit Linked Insurance Plan or ULIP is a financial product that provides the dual benefits of investment and insurance. By investing in a ULIP plan, you enjoy the flexibility of investing in multiple types of assets through funds while availing life insurance coverage. Because of this dual benefit, ULIP is a popular choice for individuals looking for insurance protection and wealth creation.

Most importantly, the premiums paid for this plan establish a connection with market-linked instruments while the remaining amount is utilised to provide life insurance coverage by well-known insurance companies. Because of its flexibility feature, you can also switch between choices of ULIP funds. Apart from this, ULIP inculcates in investors a disciplined savings habit and the ability to experience tax benefits.

  • Retirement or Pension Plans

A retirement plan, popularly known as a pension plan, is an investment option designed specifically for your post-retirement life. By opting for this plan, you can save money either through regular payments or lump sum amounts over time. Thus, through regular contributions to a pension plan, you can build up a fund to support your retirement needs.

Moreover, these plans provide a steady and stable income during your retirement, thereby ensuring a safe and secure financial future. A retirement plan is an ideal choice for investors seeking insurance coverage with high investment growth.

Who Should Opt for a Savings Plan?

Anyone looking for financial security and stability through regular contributions should opt for a savings plan. A savings plan caters to the needs of a wide range of individuals, starting from young professionals to people with no fixed income.

Thus, irrespective of whether an individual is planning for retirement or purchasing a house, opting for a savings plan is ideal to lead a disciplined life. Here are the individuals who should consider a savings plan:

  • New Professionals

A savings plan is an ideal option for new professionals starting their careers. Despite limited income, they can leverage the power of compounding to grow their wealth with small but regular savings. By starting early, professionals can create a solid financial foundation for future goals, be it purchasing a dream home, retirement planning, travelling and others.

Following this disciplined approach, professionals can build wealth and increase their financial stability and security as they progress in their careers.

  • Low-Risk Investors

Many investors prefer lower risks in their investments, maintaining safety and security. For such investors, choosing savings plans, government-backed savings bonds and fixed deposit accounts are convenient options. By opting for these plans, risk-averse investors can yield guaranteed returns while maintaining peace of mind.

  • Short Term Financial Goals

Individuals with short-term financial goals should opt for a savings plan. Examples of short-term goals include creating an emergency fund and buying a car or electronic gadgets. Regardless of the reason, you will want an investment with low risks and high liquidity to get the funds when necessary.

Unlike other investment plans, a savings plan ensures your money grows without facing rapid market fluctuations. As many savings plans offer fixed returns, you can achieve your desired financial goals and have funds ready to meet the emergency expenses.

  • Retirement Planning

Retirement planning involves long-term investment. Apart from pension plans, savings plans also offer financial stability and support to individual investors during retirement. With regular contributions of small amounts as per the plan designed specifically for investment, an individual investor can ensure to receive a regular stream of income to experience a hassle-free life post-retirement.

This will also lead them to enjoy a comfortable lifestyle without venturing into risky investments further.

  • People With Variable Income

For freelancers with unstable sources of income, saving money is a bit challenging. A savings plan follows a structured approach for building wealth over time. By contributing amounts regularly, individuals can maintain financial stability without relying independently on emergency funds during times of need. Creating an emergency fund beforehand also ensures financial preparation to meet unexpected expenses without stress.

This way, it is possible to manage unpredictable earnings and financially secure well-being in the long term.

When to Buy a Savings Plan?

Choosing the right time to buy a savings plan depends on your current expenses, financial goals, and future needs. Irrespective of whether you are planning for retirement or building an emergency fund, starting to invest at an early age gives your investment more time to grow.

Let's look into the factors to consider while purchasing a savings plan that aligns with your financial goals and objectives:

  • Financial Security

Before choosing a savings plan, make sure to assess your financial security. Knowing your financial status and goals is a priority. Once you get a clear picture of your goals, analyse your short-term and long-term goals, as it provides an idea of investment choice. Alongside this, your income also matters before committing to a savings plan. Thus, look into your financial budget and check if there are any high-interest debts to be paid off.

  • Long Term Objectives

Take into consideration your long-term goals and objectives and the time horizon of achieving those goals. If you are a younger professional or with an irregular income, starting early is more beneficial. The power of compounding will allow your savings to grow over time.

On the other hand, if you have financial goals for a shorter period, such as saving for a dream house, balancing your savings with more liquid investment options would be important.  

  • Market Trends

Predicting the market perfectly is impossible. Thus, it's essential to examine the overall economic conditions. If the market is experiencing a downfall or appears to be volatile, it is preferred to purchase a savings plan later on. However, when buying a savings plan, go for a long-term investment strategy rather than a short term. Alongside, be focused on your personal financial goals to achieve the desired objectives.

  • Risk Tolerance

Risk tolerance is another critical factor to look into while purchasing a savings plan. Properly analysing the risk tolerance level allows investors to plan their portfolios. For instance, if your risk tolerance level is low, there will be more low-risk investments and fewer high-risk investments. However, if you are risk averse, a fixed-rate savings account will be an appropriate plan for you.

FAQs on Who Should Invest in Savings Plans

1. Who should consider investing in a savings plan?

Individuals who should invest in a savings plan include risk-averse investors, including retirees and newbie investors. Moreover, an investor willing to save a certain amount to meet desired financial goals should also invest in a low to medium-savings plan.

2. Is a savings plan a good option for risk-averse individuals?

Yes, a savings plan is a good option for risk-averse individuals. It provides a safe and secure way of letting your money grow over time. With decent returns and low risk, savings plans allow individuals to build wealth and be financially ready during times of need.

3. Are savings plans suitable for young professionals?

Yes, savings plans are suitable for young professionals as they provide a structured approach to saving money and building financial habits. Moreover, it also allows young professionals to reach their desired financial goals and stay prepared for emergencies.

4. Can people with irregular income benefit from savings plans?

Yes, people with irregular incomes can benefit from a savings plan. These plans provide a disciplined approach and allow individuals to set a fixed amount aside. This thereby helps to maintain financial stability during times of need.

5. When is the right time to start investing in a savings plan?

As and when you have a steady source of income, you should start investing in a savings plan. Starting to invest at an early age helps you build a strong financial foundation for the future.

Summary

A savings plan doesn't only saves funds for your future but also provides financial security for you and your loved ones. It thus maintains a perfect balance between financial planning and providing protection to your loved ones.

Returns from a savings plan are completely tax-free. Thus, whether you are planning for long-term or short-term financial objectives, opting for the right savings plan allows you to follow a disciplined saving habit. Investing in a savings plan not only looks after your financial well-being but also provides peace of mind, ensuring your financial goals are fulfilled.

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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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