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Difference Between Savings And Investment Plans

Indians are known to be good savers. The habit to keep aside a part of the income is inculcated from childhood. Children across age groups save coins in piggy banks to utilise at a later date. But as one grows up, just putting aside currency notes and coins are not enough. How the accumulated money is used determines the long-term financial stability of the individual.

Investment plans also act as tax-planning tools, as many avenues help reduce tax liability. There are different types of investment plans, and by choosing the right one, you can invest according to your needs and grow your savings.Read Less

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Written ByPalak Bagadia
AboutPalak Bagadia
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Palak Bagadia, Associate – Digital Marketing at Bajaj Allianz Life, with experience spanning content and performance marketing, recruitment, employee engagement in the BFSI industry.
Reviewed ByRituraj Singh
AboutRituraj Singh
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Rituraj Singh,With over 6.5 years of experience in the insurance industry, Rituraj Singh, Manager- Product & Brand Marketing at Bajaj Allianz Life Insurance overlooks new product launches, compliance, and brand projects, leveraging artificial intelligence and technology to enhance outcomes.
Written on: 7th July 2024
Modified on: 7th July 2024
Reading Time: 15 Mins
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If you just save money but fail to multiply it at a certain rate, the money may eventually lose value. Savings have to be invested to preserve their value over the long run. There are various types of investment opportunities available in the market. Financial institutions like banks, non-banking finance companies and asset management companies offer a number of investment options in India. One needs to watch out for investment options that suit their risk appetite and helps them plan to achieve their Life Goals over the long run.

What are investment plans?

Investing directly can be risky as everyone is not equipped to analyse and predict the performance of different assets. Investment Plans are financial products designed to create wealth for investors over the long term provided you invest in a disciplined manner. Investment plans help you invest systematically in different asset classes i.e. equity funds, debt funds or a combination of both to achieve future life goals. The allocation in various funds is handled by professional fund managers, which helps in reducing the risk and multiplies wealth creation over time. You can also choose to manage your funds provided you are equipped and are willing to do so.

There are various investment options in India available to suit your needs based on your risk appetite and life goals. The time frame in which you want to achieve your life goals is one factor you need to look upon before deciding on the right investment plan. Inflation is something one needs to be vary of as well, hence it becomes necessary to make smart investment choices to ensure you pick an investment plan that can help you combat inflation.

What are savings plans?

Savings Plan is a traditional endowment life insurance plan that enables you to accumulate a corpus in a systematic manner over a long term to meet your life goals. Savings Plan has element of insurance as well as a wealth creation. The life insurance cover enables you to secure your loved ones in your absence and the wealth creation component enables your investment to grow just like in investment plans.

Savings plans allow you to opt for a participating plan or a non-participating plan, where a participating plan allows you to enjoy the benefits in the policy in terms of bonuses, and a non-participating plan comes with guaranteed returns. Bonus is not applicable in a non-participating plan.

Difference between savings and investment plans

In common parlance, the words savings and investments are used interchangeably. But the investment horizon, risk, return on investment and liquidity are the key differentiators between savings and investments. The same parameters differentiate savings plans from investment plans. However, there is no clear demarcation between savings plans and investment plans. Let us take a look at the basic differences between savings and investments.

• Time horizon: Savings plans can help you meet long-term goals or can come in use during future emergencies also. Investments are long-term commitments to assets like debt funds, equity funds or a combination of both that generate returns over time. Investments are made to protect and increase the value of savings in the long run.

• Returns: Savings Plan are of two types, Participating and Non-participating. Participating savings plan reward long term customers with bonuses and Non- participating saving plans offers guaranteed returns. Investment plans are generally market-linked and usually offer higher returns, but have a longer timeline. Hence you need to remain invested for a longer term to be able to maximise the returns.

• Risk: Savings plan could be a good choice if an investor is not willing to take a higher risk and is able to digest a moderate risk instead over the long run. The risks associated with investment plans are higher as the money is invested in market-linked products

Why you should opt for an investment plan

There are various reasons for choosing an investment plan.

• Wealth creation: Investment plans are generally a preferred tool for wealth creation. The money committed to investment plans can multiply manifold over the tenure of the plan provided you stay invested. The accumulated corpus at the end of the investment tenure can be used to achieve important life goals.

• Beats inflation: India is a developing country with a relatively high inflation rate. If you do not invest your money in financial products that ensure a certain rate of return, the money is likely to lose substantial value over time. Investment plans are designed to deliver returns to combat the inflation rate, which preserves the value of money and grows the corpus so that your life goals are not compromised.

• Potential to generate High returns: Investment plans invest the money into market-linked instruments i.e. in equity funds, debt funds or a combination of both which has a potential in generating higher returns over the long term. Coupled with the power of compounding, investment plans generate substantial returns over the years.

Why should you opt for a savings plan?

Investment plans are a popular option for people with substantial corpus, seeking a high rate of return. For people with a lower tolerance for risk, savings plans are the ideal option. Here are a few reasons to opt for a savings plan

• Moderate risk: Savings plans are for those who do not have a high risk appetite. One can invest in a participating savings plan if they want to receive extra benefits like a Bonus or can simply opt for a non-participating savings plan which offers guaranteed returns without any bonus component.

• Savings plus life insurance cover: Part of the premium goes towards a life insurance cover and the rest is invested in a conservative portfolio of bonds and other fixed income securities.

Conclusion

Before investing in a savings or investment plan, it is important to figure out the right options that suit your needs. Conduct adequate research and invest as per your requirements and the resources at your disposal. Without long-term commitment, it is not possible to get the desired results. Hence invest wisely and in a disciplined manner to get your financial goals and Life Goals Done.

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~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

**Past performance is not indicative of future performance.

The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.

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*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

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1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


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%%Above illustration is for Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V03) considering Male aged 25 years | Non-Smoker | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 6,238. 2nd Year onwards premium is Rs. 6,659. Total Premium Paid is Rs. 1,99,349 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly installments (Lumpsum Payout Percentage : 45, Income Payout Percentage : 55) | Premium shown above is exclusive of Goods & Service Tax/any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. This is inclusive of all the discounts mentioned above.

##Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

@Term Insurance plan bought online directly from Bajaj Allianz Life Insurance has no commissions involved.

^^The Return of Premium amount is total of all the premiums received, exclusive of extra premium, rider premium and GST & /any other applicable tax levied, subject to changes in tax laws
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