What is Investment?

Investment refers to creating various financial instruments or assets with the goal of generating returns or profits over time. The primary objective of investment is to make your money grow in value to increase your wealth and financial security.

Investing is crucial for several reasons. It helps you to grow your wealth and achieve long-term financial goals, such as retirement planning, purchasing a house or funding your child’s higher education. Secondly, investment is essential for beating inflation. Over time, the purchasing power of your money decreases due to inflation. Putting your money in investment options that provide returns higher than the inflation rate allows you to preserve and even increase the real value of your wealth.

Investment options in India

There are various options to invest your money in. You can choose the one that suits your requirements. A life insurance plan provides the dual benefit of life cover` and growth of your money, depending on the type of plan you choose. Below are the various types of life insurance plans that you can consider for investing:

Public Provident Fund (PPF)

PPF is a small-saving scheme backed by the Government of India. It comes with a lock-in period of 15 years. It is a long-term investment option offering risk-free returns.

You can open a PPF account with a bank or a post office with a deposit of a minimum of ₹ 100. Once you have a PPF account, you can deposit between ₹ 500 to ₹ 1.5 lakh every year in the account. The amount you deposit in your PPF is eligible for tax deductions under Section 80C of The Income Tax Act, 1961.

In case of PPF, the deposited amount, interest earned and maturity amount – are all exempt from taxes. The government decides the interest rates from time to time.

Mutual fund Investment

Mutual funds are managed by professional fund managers. They invest your money in instruments such as stocks and bonds, as per your choice. Mutual funds carry risks depending on the type of instrument your money is invested in.

Stocks or shares or equity

Stocks represent ownership in a company. You can purchase these through a stock exchange like BSE or NSE. Brokerage firms, banks and more can also help you purchase stocks. Stock prices rise or fall basis the company's performance, stock market conditions, and a mix of multiple other factors. Stocks are high-risk, high-return investments. As an investor, it is important that you conduct in-depth research before investing in stocks.

Bonds

Bonds are debt instruments in which you lend money to the government or a business entity. When you invest in a bond, you get back your investment amount along with interest. This interest rate is also called coupon rate. You can invest in bonds either directly or through mutual funds. You can consider investing in bonds if you are looking for steady rates of return at a relatively low risk.

National Pension System (NPS)

National Pension System (NPS) is a government-backed investment plan. It is a long-term savings option that can offer you with income during your retirement.

You can invest between 18-65 years of age and continue investing till you are 75 years old. NPS offers tax deduction of up to ₹ 50,000 per annum under Section 80CCD(1B) which is over and above the limit of ₹ 1.5 lakh offered by Section 80CCE. While investing, you can choose to allocate your money in four asset classes – equity, government bonds, corporate debt and alternative investment funds (AIFs).

Fixed Deposits or Term Deposits

Fixed deposits (FDs) are offered by banks and non-banking finance organisations (NBFCs). You can deposit a lump sum amount for a fixed tenure of your choice and earn interest on the same. FDs are risk-free investments that offer a guaranteed rate of return and are not affected by market volatility.

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Savings/Endowment plan

Savings/Endowment plans are life insurance plans that provide the dual benefit of insurance and savings. These plans help you save money, and at the same time, provide financial security to your loved ones in case of any unforeseen event. Savings/Endowment plans provide guaranteed^~ returns and are customisable. Most plans allow you to choose the premium you want to pay as per your requirements. You can also choose whether you want to pay the premiums monthly, half-yearly, yearly or all at once. These plans provide you bonuses, which add to the returns from the plan.

^~T&Cs Apply

Money-back plan

Money-back plans provide you with a large life cover` and additionally, return you the premiums you have paid towards your plan on maturity. This amount can be used to fulfil your long-term financial goals. You can also opt for riders/add-ons to enhance the coverage from your plan at a minimal cost

Child plan

These plans are one of the best ways of securing your child's future financially. A child plan provides maturity benefits in annual payments or a one-time payout as per your choice. This amount can be used for your child’s higher education, wedding, starting a new venture, and more. Child plans also provide a life cover^’, securing your child’s future even in case of an unfortunate event

Retirement plans

Retirement plans help you stay financially independent during your retirement. These plans are primarily of two types:

• Retirement savings plans – These plans help you save for your retirement. They help you contribute regularly during your earning years and provide you with a large amount at the time of your retirement. This amount can then be invested in a retirement annuity plan to receive a regular income during your retirement years. You can consider investing in a retirement savings plan if you want to start saving for your retirement in your early years.
• Retirement annuity plans¹ – These plans provide you with a fixed regular income during your retirement in exchange for a lump sum investment. You can choose to receive the income immediately or at a later age. This regular income can help you maintain your current lifestyle even post retirement. You can also fulfil your post-retirement goals, such as travelling, starting a new venture, pursuing a hobby, and more. You can consider investing in a retirement annuity plan if you are in your 50s and nearing retirement.

Term plan

In addition to investing in a plan that suits your requirements, it is important to purchase a term plan for the financial security of your loved ones. A term plan is a pure protection plan that offers financial stability to your loved ones in your absence. It provides financial coverage for a specific duration, i.e., a term selected by you at the time of the purchase of the plan. ICICI Pru iProtect Smart is a term plan that provides life cover` till 99 years of age.

A term insurance plan provides you with a large financial cover for an affordable premium. You can also opt for riders/add-ons to enhance the coverage from your plan at a minimal cost. Below are the riders offered by ICICI Pru iProtect Smart Term plan:

• Critical illness rider^{^} (optional): This rider provides upfront money on the detection of any of the 34 critical illnesses covered by the plan. Submission of medical bills is not required. The amount can be used to cover treatment costs, day-to-day expenses, and more
• Accidental death benefit rider (optional)²: This rider provides an additional sum in case of an unfortunate event due to an accident. This additional sum is over and above the base sum assured provided by the plan
• Waiver of premium due to permanent disability rider³: In case of permanent disability due to an accident, this rider waives off all future premiums. This ensures that the life insurance policy stays active even if the policyholder is unable to pay the premium
• Terminal illness rider⁴: On the first diagnosis of a terminal illness, the entire claim amount provided by the policy is paid upfront. This helps to ease the financial burden off the family members during the difficult times

Post Office Saving Scheme

Post office investment-savings schemes are offered by India Post. These schemes offer a range of deposit avenues for low-risk investors that can help you build a financial corpus for emergencies and achieve your diverse financial goals. These schemes also offer deduction of up to ₹ 1.5 lakh under Section 80C^* of The Income Tax Act, 1961, making them attractive options for tax-efficient saving and investment. Below are some investment options in India under post office schemes:

• Post Office Savings Account
• Post Office Time Deposit Account (TD)
• Post Office Monthly Income Scheme Account (MIS)

Unit Linked Insurance Plans (ULIP)

Unit-Linked Insurance Plans (ULIPs) are hybrid financial products that combine investment and insurance components into a single plan. In a ULIP, a portion of the premium is allocated towards your life cover^`, and the remaining premium is invested in the funds of your choice, such as equity, debt or balanced funds^#. You can switch between different funds or adjust your asset allocation according to changing market conditions or your personal financial goals based on your current risk appetite and investment objectives.

ULIPs are considered one of the best investment options as they offer the potential for wealth creation through investment in capital markets. Moreover, they also provide life insurance coverage, ensuring financial security for your family in the event of your absence.

Further, ULIPs offer tax benefits under Section 80C^* of The Income Tax Act, 1961, allowing you to claim deductions of up to ₹ 1.5 lakh on the premiums paid toward the policy. Additionally, the maturity proceeds or death benefit received from ULIPs are exempted subject to conditions prescribed under Section 10(10D)^*.

Liquid Funds

Liquid funds are a type of mutual fund that specialises in investing in short-term, low-risk debt instruments with high liquidity. They are a type of debt fund and primarily invest in fixed-income and money-market instruments that have a short maturity period of 91 days or less and boast a high credit rating of AA or higher.

One of the key features that make liquid funds that is one of the best investment options in India is their high liquidity. Unlike other mutual funds, liquid funds offer you the flexibility to withdraw your investments quickly and easily, usually within one business day. This makes them an ideal choice for parking your surplus funds temporarily or building an emergency fund. Moreover, liquid funds are considered relatively low-risk due to their focus on high-quality debt instruments, such as Certificates of Deposits (CDs), treasury bills and commercial papers.

Senior Citizen Savings Scheme (SCSS)

The Senior Citizen Savings Scheme (SCSS) is a government-sponsored program primarily aimed at providing financial security to senior citizens in India. This scheme is specifically designed to cater to the needs of individuals who are 60 years old or older and ensure that they have access to a reliable income stream during their retirement years.

One of the key attractions of SCSS is its high interest rates, which are set by the government and revised quarterly. The scheme also offers tax^* benefits under The Income Tax Act, 1961. To open an SCSS account, you can visit your nearest post office or designated bank branch and fill out the application form. The minimum investment amount for SCSS is ₹ 1,000, while the maximum investment limit is ₹ 1.5 lakh in a financial year.

SCSS offers investors the flexibility to make early withdrawals, which makes it a suitable investment option for senior citizens who may need funds for medical emergencies or other unforeseen expenses.

Benefits of Investing

Below are some of the key benefits of investing:

Growth of money

Investing money in the right plan can provide you with returns to help you achieve your financial goals. Investing helps you to not only grow your money but also stay financially prepared for your needs

Impact of inflation

Inflation is the increase in the cost of goods and services over time. This means, to purchase the same goods and services, you will have to pay more. You would need more money to buy the same amount of goods or services in the future. Investing money can provide you with returns that can help you factor for inflation in the future so that you can maintain your lifestyle and meet your goals without any worry

Additional income

Investing in the right plan can provide you with an additional income. This can be used to meet your financial needs, pursue a hobby, fulfil your aspirations, and more

Financial discipline

Investing in a plan regularly helps you build a habit to set aside an amount regularly for your future needs. This discipline also helps you reduce unwanted expenses and stay financially prepared

Things to consider before investing

Here are some things to keep in mind before investing:

Returns from the plan

You invest money to meet your future financial goal. The investment plan should be able to provide you with returns that can help you achieve them.

Risk appetite:

You may want to invest in a plan that provides you with guaranteed^~ returns or market-linked returns as per your risk appetite and requirements. Plans like savings/endowment plans provide you with returns that are fixed at the time of the purchase of the plan. Plans like ULIPs (Unit Linked Insurance Plans) provide you with market-linked returns. In ULIPs, you can choose to invest in high-performing equity funds, low-risk debt funds, or a mix of both as per your risk appetite.

^~T&Cs Apply

Investment flexibility

You may want to invest in a plan that provides you with the flexibility to invest monthly, half-yearly, yearly or one-time as per your convenience. You may also want to look for features like the ability to withdraw money in times of need, choosing the duration for which you want to stay invested, choosing the amount that you want to invest regularly, and more.

Tax benefits^*

Look for a plan that provides tax benefits^* under the Income Tax Act, 1961. These benefits increases the overall returns from the plan. The premiums paid towards life insurance plans are allowed as a deduction^* of up to ₹ 1.5 lakh per annum under Section 80C. The payouts received from the plan are also tax-free^* under Section 10(10D) depending on the type of plan you invest in.

Investment Knowledge

Investing with a solid understanding of various investment options enables you to make sound decisions about your financial future. Knowing how different investments function allows you to select the best investment options that align with your needs, risk tolerance and financial goals. Additionally, being aware of tax implications, maturity rules, deposit criteria and other similar factors associated with each investment instrument helps you accurately assess potential risks and rewards.

With sufficient investment knowledge, you can diversify your portfolio effectively and spread risk across different asset classes and investment tools.

Financial Goals

Having clear and well-defined financial goals is vital for successful investing. Financial goals provide you with a roadmap for your future. Setting specific financial goals helps you identify your investment timeframes, risk tolerance and expected returns. For instance, short-term goals like building an emergency fund or saving for a vacation typically require low-risk investment options with liquidity and capital preservation. Medium-term goals, such as buying a car or funding education, may involve a balanced approach with moderate risk and potential for growth. Long-term goals, like retirement planning, may need a more aggressive investment strategy.

Aligning your investment choices with your financial goals can help you create a disciplined investment plan for your long-term financial well-being.

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