Where To Invest Money In India

First-time investors are often faced with the question of where to invest money in India. With the country’s financial markets teeming with several types of investments, it can be overwhelming to choose an instrument that suits your requirements and risk appetite. Some of these options even qualify as tax-saving investments, meaning that they can help you reduce your tax liability as an added advantage.

Amongst the many tax-saving investments in India, life insurance is one of the foremost option preferred by investors. If you’re unsure about where to invest money, it is always a good option to research well or you can even consult a subject matter expert to advice you. There are several kinds of insurance products that offer the benefit of insurance coupled with return on investment.

Here’s a closer look at some of these tax saving insurance plans, their features, and the benefits they offer.

1. UNIT LINKED INSURANCE PLANS (ULIPS)

A Unit Linked Insurance Plan is essentially a combination of both insurance and investment. It offers the ability to enjoy market linked returns over the long term. When you invest in a ULIP, your premium is invested in market linked funds. The charge for providing life cover is deducted monthly from the fund value.

Features of ULIPs:

Unit Linked Insurance Plans possess several characteristic features, some of which are explained below.

• Market-linked investments: The contribution that you make in a ULIP is invested in the marked linked funds. Therefore, the performance of your investment is linked directly to the market linked fund’s performance.
• Fund options and fund switching: ULIPs offer you the option to choose the type of funds to invest in. You can choose from a range of alternatives like equity funds and debt funds instruments. Additionally, if you wish to take advantage of the market’s performance, you can also choose to switch the type of funds during the term of the policy. You can either do this on your own if you are well versed with markets, take an experts advice or let the insurance provider manage the funds for you.
• Lock-in period: ULIPs come with a minimum lock-in period of five years, during which you cannot withdraw your funds. After the lock-in period has expired, you can withdraw your funds partially or completely.

Benefits of investing in ULIPs:

• Dual benefit of investment and insurance
• Freedom to invest in a variety of funds based on your risk appetite
• Market linked returns if you remain invested for the long term
• Some ULIPs provide loyalty additions that enhance the policy’s maturity value
• Deductions for premium paid as per section 80C of the Income Tax Act, 1961, subject to provisions stated therein.
• Tax exemptions for the maturity or death benefits as per section 10(10D) of the Income Tax Act, 1961, subject to provisions stated therein.

2. TERM INSURANCE

A term insurance plan offers pure life cover in the event of death of the life assured. If you’re unsure about where to invest money to secure the future of your family in case of any untoward happenings, a term insurance plan is a good place to begin your journey.

Features of term insurance:

Easily one of the most affordable tax-saving options in India, a term insurance plan comes with several features, as explained here.

• Pure life cover: A term insurance plan is offers life cover without any savings element, meaning that it case of a contingent event, it provides a pre-decided amount to the nominee. No maturity benefits are paid out under this option.
• Return of premium option: Some term insurance plans make up for the lack of maturity benefits with the return of premium option. This feature ensures that all the premium amounts paid by you during the course of the policy tenure are returned after the maturity date, if you’ve survived the policy’s term.
• Additional benefits: Term insurance plans also offer you the added advantage of choosing from several rider options. Some popular rider options include critical illness coverage rider, the accidental death benefit rider, terminal illness cover, and waiver of premium.
• Periodic claims payout: Term insurance plans with a staggered claims payout option allow you to receive a part of the death benefits as a lump sum amount, and the remaining funds as periodic monthly installments or yearly payments.

Benefits of investing in term insurance:

• Affordable premiums owing to only life cover being offered without any savings element
• Death benefits that help meet significant expenses following the demise of the primary breadwinner
• Tax benefits for the policyholder as per section 80C of the Income Tax Act, 1961, (subject to provisions stated therein) where the premiums paid can be deducted from the total income.
• Tax-free death benefits as per section 10(10D) of the Income Tax Act, 1961, (subject to provisions stated therein
• Option to purchase additional riders for enhanced coverage

3. TRADITIONAL ENDOWMENT PLANS

Traditional Endowment plans are among the many types of investments that offer tax benefits to investors. These are essentially life insurance schemes that combine a life cover while also providing maturity benefit. The funds that your premium is invested in are not linked to the markets, making endowment policies non-linked savings plans.

Features of endowment plans:

Some of the defining features of an endowment policy are explained here.

• Guaranteed sum assured: Endowment plans come with a guaranteed sum assured. This is essentially the sum that is assured to you as a part of the death benefits, payable in case the policyholder passes away when the policy is active. Guaranteed sum assured plans are also known as par plans as it has a bonus component whereas, non-guaranteed will just have the benefit minus any bonus component.
• Endowment plans come in 2 forms:
  • Participative: Participative plans are kind of plans in which bonuses are provided. Popularly known as Par products.
  • Non-Participative: Non- Participative plans are kind of plans in which guaranteed additions are provided. Popularly known as Non-par plans.
• Maturity benefits: Endowments plans, being investment schemes, pay out a maturity benefit to policyholders who survive the tenure of the policy.
• Terminal bonus: In addition to the maturity benefits paid out at the end of the policy term, traditional endowment plans also pay out terminal bonuses to policyholders who remain invested for the entire term of the policy wherever applicable.
• Rider options: You can enhance the financial benefits offered by endowment plans by purchasing additional riders such as waiver of premium benefits rider, terminal illness riders, critical illness coverage, or disability benefit riders.

Benefits of investing in endowment plans:

• Guaranteed maturity benefits
• Many plans also offer an option to avail a loan against the policy
• Tax benefits under section 80C and 10(10D) of the Income Tax Act, 1961, subject to provisions stated therein
• Non-linked investments that offer stability and pose lower risk

4. RETIREMENT PLANS

Pension Plans or annuity plans are specifically structured to allow you to save up for your golden years. These types of investments help you save up strategically during your earning years, so your investment grows into a sizeable fund that acts as a financial safety net after you retire through which you can invest in an annuity policy which will provide you with regular income post your retirement. The money generated from retirement plans can help you meet your life goals later in life.

Features of retirement plans:

Pension and annuity plans have many features that help you save up for the future. Here’s a quick look at some characteristics of these investment plans.

• Multiple annuity options: Annuity plans come with various options like life annuity, and return of purchase price, joint life among others. You are free to opt for the annuity scheme that best suits your financial requirements.
• Flexible payout options: The annuity payments made under the retirement plan can be paid out by the insurer at any frequency that’s convenient for you. You can choose from the many flexible payout options available, such as monthly, quarterly, bi-annual, or annual payments.

Benefits of investing in pension/annuity plans:

• Guaranteed pension or income post-retirement
• Premiums deductible as per section 80CCC of the Income Tax Act, 1961, subject to provisions stated therein
• Up to one-third of your pension maturity amount is receivable as a lump sum, tax-free amount under Section 10(10A) of the Income Tax Act, 1961, subject to provisions stated therein
• Ability to meet post-retirement life goals
• Customizable annuity payouts

Conclusion

In a financial market as diverse as India’s, there’s no dearth of tax-saving investments. The types of investments explained here are only some of the numerous options available for investors. And now that you have a clearer picture of where to invest money, you can study these investment options and decide on the ideal life insurance plan for yourself and your family, depending on your life goals and your investment budget.