Investment Plans 935 views August 28, 2020

How to Secure High Returns for Life?

When we talk about investment plans, often the most important things that come to our mind are security of money, return on investment and whether if the investment plan is in line with your life goals.


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Safety of Money

Return of Money is more important than returns on money. Hence, it is important to choose investment plans where there is almost no risk of default. The most secure investments are those that are issued by the govt. or RBI. High-grade banks, PSUs and Insurance firms backed by top financial institutions also offer extremely high security of money. Guaranteed Return plans backed by top insurance firms promise complete safety of money and peace of mind. There has been no instance of any insurance company collapsing and not able to pay back investor money in India. Hence, your money is completely safe if you invest in a guaranteed return plan.

Is the Investment Plan in Line with Your Life Goals?

There are a few aspects to consider while considering investment planning for your financial goals and to achieve financial security and freedom for you and your family members.

Premium Amount – This should be in proportion to your current income. Remember, the more you invest, the more would be the eventual corpus accumulated. The premium amount should not be so low in proportion to your income that the eventual corpus accumulated is very small and insignificant. If you earn Rs fifty thousand rupees a month, it makes no sense to have a Rs 2000 per month investment plan. Similarly, the premium amount should not be so high that you end up not being able to pay the premium amount and discontinuing the investment plan. If you earn rs 50000 per month, it may not be wise to pay more than Rs 25000 per month towards an investment plan – especially if you have other dependents also.

Policy Tenure – Are you sure you will be able to invest for the next 10 years? Are you sure that you would not be needing this money before the end of policy tenure?

You should answer these questions before selecting a policy tenure. Remember, the longer you invest, the higher would your accumulated corpus be. While choosing the premium paying term for your policy, you should keep in mind your expected future incomes and expenses. It may not make sense to have a premium paying term of 15 years if you are close to retirement or self-employed with varying incomes. Remember, if you discontinue your policy after paying premiums for 2-3 years, your returns will be very low and you may also have to face a loss if you choose to surrender your policy.

Mode of payout – Are you taking this plan so that you can save towards your daughter’s marriage? Or are you taking a plan for continuous income in retirement?  You should figure out if you need the corpus amount in one go or annually over a long period of time. Payout terms can be as follows-

  1. Lumpsum – You get the entire maturity amount at the end of the policy period
  2. Annual Income – You get an annual income for a fixed number of years at the end of the policy period
  3. Lumpsum+Annual Income – You get some amount upfront while the rest as annual income for some years.
  4. Life-Long Income: You get an annual income until you die.

You should choose lumpsum payment options in case you are sure you will be able to handle the corpus of money wisely. Otherwise, it is best to choose annual income options.

Return on Capital

We make any investment decision so that we can earn some returns on our capital and grow our wealth over the years. There are many investment instruments available in the market – guaranteed return plans, fixed deposits, mutual funds, chit funds etc. It is important to understand that higher returns are almost always associated with higher risks. Equity mutual funds have delivered roughly 10% returns annualized over the last 10 years. However, they fell as much as 35% in the weeks of the Covid-19 pandemic. If your total investment was of Rs 10 lacs, it would have reduced to Rs 6.5 lacs only in a matter of 3-4 weeks.

Hence, you should take investment decisions based on your profile and risk appetite.

Your tax status is also an important point to consider. Always calculate the post-tax returns while comparing any investment. As of August 2020, the best FD rate offered by top banks is close to 5.5%. In case you fall in the 30% tax slab, your post-tax returns will be slightly lower than 4%.

In comparison, guaranteed return investment plans may offer as much as 5.5% returns ( annualized) . There are also some investment plans that offer as low as 2% returns. Hence, it is important to choose an investment plan wisely.

It is also important to note that the guaranteed returns plans are most tax-efficient and enjoy the EEE exemption status under section 80C and Section 10 (10D) of the Income Tax Act. The EEE status implies that there is a tax benefit

  1. At the time of initial investment
  2. On the Returns Earned
  3. At the time of final withdrawal

It is possible to secure high returns on your investments while also ensuring the safety of your capital. You should choose your investment plans wisely as per your life goals and the returns offered by the plans. You should consult with an experienced investment advisor who is not motivated solely by commissions and who can help design the best investment strategy as per your needs and profile.

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