Where To Invest Money In India

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

Key Investment Choices Available in India

1. UNIT LINKED INSURANCE PLANS (ULIPS)

   A Unit Linked Insurance Plan is essentially a combination of both life insurance and market linked 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 plan 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 the 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 offers life cover without any savings element, meaning that in the 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 the critical illness coverage rider, the accidental death benefit rider, terminal illness coverage, and the 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 instalments 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 life cover while also providing a 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 while the policy is active. Guaranteed sum assured plans are also known as par plans as it has a bonus component, whereas non-guaranteed plans 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: Endowment 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 a 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
      

Key Factors to Consider Before Choosing an Investment Plan

Before deciding where to invest your money, it is important to consider some important factors so that you can make the right decision. Some of these factors are as follows -

• Define Your Financial Goals

  Identify and define the financial goals for which you want to save and create a corpus. Knowledge of your goals would help you understand the corpus that you need to create and your investment time frame. It would also help you choose the right life insurance plan.

  
  

• Assess Your Risk Tolerance

  Your risk tolerance level is your risk-taking ability. The higher your level, the more aggressive your risk-taking becomes Knowledge of your risk level would help you choose between a traditional and a ULIP life insurance plan. Even when buying ULIPs, you would be able to choose the right market linked investment fund among equity, debt or balanced based on your risk appetite.

  
  

• Evaluate Past and Expected Performance

  Assessing the past performance* can help you estimate the returns that you can generate on your savings When buying ULIPs, assessing the past performance* of the market linked funds may help you understand how well the funds are being managed and the returns you may expect.

  
  

• Consider the Lock-in Period

  This is an important factor to consider so that you can understand when you would be able to access the corpus from your life insurance plans.

  
  

• Account for Investment-Related Costs

  There might be certain charges involved with life insurance policies. For instance, ULIPs have different types of charges associated with them.

  Assess these charges and choose a plan which suits you best so that a higher proportion of your premiums would be invested and you might earn higher returns.

  
  

• Understand Market Trends and Volatility

  When investing in ULIPs, always understand the latest market trends. Plus, when you are investing in equity-oriented funds, be prepared for short-term volatility that might affect your fund value. Try and stay invested over a long-term horizon create a suitable corpus.

  
  

Key Takeaways

• There are different avenues where you can invest money in India and create a corpus for your financial goals.
• Life insurance plans can also prove to be a good choice for investing your savings.
• There are different types of life insurance plans to choose from, which include endowment, ULIPs, term plans, and retirement-oriented annuity plans.
• Endowment plans are traditional savings plans which can help you create a stable corpus for your financial goals.
• ULIPs are combination of life insurance component and market-linked funds that help you earn investment returns by investing a part of your premiums in market-linked funds.
• Term plans provide financial security against the risk of premature demise during the policy tenure and are the most affordable life insurance plans.
• Retirement plans are annuity plans that help in creating a retirement corpus and also securing lifelong annuities
• Before choosing the best way to invest money in India, consider your goals, risk appetite, past performance, lock-in period, market trends, and associated charges.
   

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 some of the best places 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.

FAQs

1. Where should I invest my money for short-term goals?

   For short-term goals, you can choose short-term investment avenues like savings accounts, fixed deposits etc.

   
   

2. Which investment is best for long-term wealth creation?

   The choice of the best long-term investment plan would depend on your financial goals, risk appetite, and investment needs. Life insurance cum investment plans like ULIPs can also help you create a corpus for your financial goals over the long term.

   
   

3. How do I decide where to invest my money?

   The decision of the investment avenue should depend on your financial goals, risk appetite, investment horizon, investment strategy, tax planning, etc.

   
   

4. Can I invest with low risk and still earn good returns?

   Low-risk avenues might not offer high returns on investments since they prioritise the safety of the invested capital. However, some low-risk options, like traditional life insurance endowment plans, can offer good returns at low risk.

   
   

5. What are the safest investment options in India?

   Some of the safest investment options include life insurance savings plans, bank fixed deposits, PPF, government securities, etc.