Are you someone who is at the prime of your youth, has a stable flow of income and is looking for avenues where you can invest your surplus income? With so many options and information available out there this can seem like a herculean task. Of course, you would have received many messages on your mobile and inbox exhorting you to invest here and there.
But when it comes to your hard earned money it is important to make an informed decision. This article outlines the investment scenario in India and various options available.
Daily dose of news keeps one aware that inflation in the country is on a rise1 .The value of rupee is depreciating2. However, the external economic scenario is not something we can control. But, you can be prepared to face any financial crisis when you have back up investments.
The previous generation, our parents invested in house and real estate, the value of which today has become manifold. Similarly a lot of people invest in shares and equity market whose value magnifies over the years. Instead of just saving your money in a bank account or in cash, investing it in an asset of your choice can help you increase your wealth.
These investments help you in growing your money. They also help in making your retirement as comfortable as possible with regular income through investment in pension funds. By investing you can meet the expenses related to milestones in your future which may include education of your children, their marriage, a home of your own and funds set aside to meet medical emergencies besides maintaining your lifestyle. Apart from these, investment tools also act as tax saving tools.
Where to invest
Where to invest is a question not easily answered because there are many avenues for investing. There are different asset classes that you can look at in the market which are ideal for you to invest to achieve your financial goals.
Here is a list of asset classes
Creating assets is the route to creating wealth and generating income. Here is the list of asset classes that can help you in this:
- Insurance linked financial instruments
- Cash (hard cash, money market instruments and savings bank accounts)
- Real Estate (plots, homes, apartments and commercial buildings)
- Equity (stocks, shares and mutual funds)
- Fixed income (fixed deposits, PPF accounts and Small Savings)
- Commodities (gold, silver and food crops)
- Derivatives (financial securities based on an underlying stock, indices, foreign exchange and bonds)
- New class of assets (art, sculpture, crypto currency, structured products and hedge funds)
The above is not an exhaustive list as no doubt newer asset classes will emerge as investors will find new avenues to invest their money to generate more wealth and earn more income.
Features of Asset Classes
The classification of assets is based on similarities that exist in the instruments that constitute an asset class. These may include
- Market behavior over time
- Financial characteristics
Let us look at one of the asset classes, the insurance linked financial instruments in detail.
Insurance linked financial instruments
Any insurance linked investment is a popular investment avenue that helps you to achieve multiple objectives like growth of your wealth, regular income and life cover. There are several investment options in insurance linked investment plans which include term insurance, health insurance, savings plans, retirement plans and unit linked plans.
Term insurance plans are preferable because of their simplicity and low cost. The major motivation for taking term insurance is the security it offers to your loved ones, by safeguarding their financial future in case of any unfortunate event. With term insurance you can get life cover of up to ₹1 crore by paying just ₹490 per month# for the policy term3 subject to factors such as age and income). You would agree that you could easily pay such a low premium to ensure the security of your loved ones.
Savings plans provide you protection and the investment serves as a welcome financial treasure chest that could serve you and your family very well. This type of investment offers several options such as receiving an assured maturity benefit or regular income streams at different points in time. These types of investments help you to be protected and at the same time be able to realize returns periodically. The plan also offers flexibility in paying premiums.
Retirement plans have several interesting features. There are plans like ICICI Immediate annuity plan that offer guaranteed pension till 99 years with an option to include your wife after your demise to receive the pension. These plans have the option of securing an immediate annuity or deferred annuity.
Unit linked insurance plans
ULIPs offer dual benefits, one is the protection element which provides life cover and through the investment element part of your premium is allocated to market linked funds. In case of your premature demise, your nominee will get the sum assured amount and also the maturity benefit of the policy based on the NAV of the fund invested in. You have the liberty to choose the type of funds you want to be invested in - equity or debt or a combination. You have a lot of flexibility in these plans with respect to the benefits you want, the premiums you pay and the investments you want to indulge in.
Health insurance plans
Health insurance plans are an excellent investment option that can provide you the necessary finances in case of any medical emergencies. These plans are quite flexible and you can choose from a variety of plans that are tailored to cover various types of expenses related to hospitalization, diagnoses, surgeries, treatments, medicines and other complications that may arise due to illness (critical or otherwise), injury or accident. There are even plans that can offer lump sum payments when the insured person acquires a critical illness.
As can be seen from the foregoing your investment in insurance plans serves dual purpose of providing you insurance cover and opportunities to multiply your wealth as well as receive periodic lump sum amounts. You also have the freedom to choose different types of plans based on your requirements of protecting your family, building wealth and earning a regular income after retirement. These investment plans offer tax benefits* as per prevailing laws, which is a great added benefit.
As a person wanting to invest it is always good to consider your requirements for yourself and your family and set financial goals. Based on these goals you can then evaluate the various options available and proceed to make your investments.
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#The premium rate is of life option, regular pay and Income Payout option of ICICI Pru iProtect Smart for 25 year healthy male for policy term of 15 years and inclusive of tax. Yearly premium will be ₹5,444.
*Tax benefits under the policy are subject to conditions under Section 80C, 80CCC, 80CCD, 80CCE, 10(10A), 10(10D) and other provisions of the Income Tax Act, 1961. Goods and Services Tax and Cesses, if any, will be charged extra as per prevailing rates. The tax laws are subject to amendments from time to time. Please consult your tax advisor for details.