Investment plans are an effective way to grow wealth, achieve long-term financial goals, and manage risks. In India, investment plans are increasingly popular due to the growing need for financial security and stability. Investment plans offer a range of benefits that can help you achieve your financial goals and build a better future for yourself and your loved ones. In this article, we will explore the top benefits of investment plans in India and help you understand why investing in these plans can be an excellent decision for your financial well-being. But before knowing about investment plan benefits let’s know what exactly the concept of investment plan is.
Top 10 Benefits of Investment Plans in India
There are so many benefits of investing in investment plans in India. Following are the top 10 benefits of having an investment plan in India.
- Wealth Creation
- Retirement Planning
- Diversification
- Professional Management
- Tax Benefits
- Convenience & Flexible
- Regular Income
- Liquidity
- Risk Management
- Low-Cost Investment Options
Wealth Creation
Investment plans provide an opportunity to create wealth and achieve long-term financial goals such as buying a house, children's education, or marriage. Investment plans can help in creating wealth in India by providing an opportunity to invest in assets that generate higher returns over the long term, enabling the power of compounding, diversifying the portfolio, and providing access to professional management. This can result in significant wealth creation over time, and investment plans are a valuable tool for achieving long-term financial goals and building wealth.
Retirement Planning
Investment plans play a critical role in retirement planning in India. Retirement planning is all about saving and investing money for your future, and investment plans provide individuals with a range of options to invest their savings. There are various investment plans available in India, such as Annuity Plans, Employee Provident Funds (EPF), Public Provident Funds (PPF), National Pension schemes (NPS), mutual funds, and fixed deposits. These plans provide different benefits such as tax benefits, higher returns, and flexibility.
Diversification
Investment plans can help individuals diversify their investment portfolio in India. Diversification is the practice of spreading your investments across different asset classes and investment products to reduce overall risk and increase the potential for returns. By investing in a range of investment plans, individuals can reduce the risk of losing money if one particular investment underperforms.
There are various investment plans available in India that offer different risk levels, investment horizons, and potential returns. Some of the popular investment plans in India include mutual funds, fixed deposits, unit-linked insurance plans (ULIPs), and National Pension Scheme (NPS). ULIPs are a type of insurance plan that offers both investment and insurance benefits. They invest the premium in a range of investment products such as equity, debt, and hybrid funds. By investing in different ULIPs, investors can diversify their investment portfolios and reduce the risk of loss.
Professional Management
Investment plans provide access to professional management in India. Professional management refers to the services of professional fund managers who manage the investment portfolio on behalf of the investors. Fund managers have the expertise and experience to analyze market trends, select the right investment products, and make investment decisions based on market conditions.
Investment plans in India, such as Unit-Linked Insurance Plans (ULIPs) and National Pension Scheme (NPS), also offer access to professional management services. In ULIPs, the premium paid by the investor is invested in a range of investment products such as equity, debt, and hybrid funds, and the fund is managed by professional fund managers. Similarly, in NPS, the pension fund is managed by professional fund managers who invest the money in a diversified portfolio of stocks, bonds, and other financial instruments.
Tax Benefits
In India, the government offers tax benefits to individuals who invest in certain investment plans under the Income Tax Act, of 1961. These investment plans are designed to encourage people to save for their future and reduce their tax liability at the same time. The tax benefits associated with investment plans can be in the form of tax deductions, exemptions, or tax-free returns on investments.
For example, some investment plans like Public Provident Fund (PPF), National Pension System (NPS), Equity-Linked Saving Scheme (ELSS), Unit Linked Insurance Plan (ULIP), and Tax-saving Fixed Deposits (FDs) allow investors to claim a deduction of up to Rs. 1.5 lakh per financial year under Section 80C of the Income Tax Act. This means that investors can reduce their taxable income by up to Rs. 1.5 lakh by investing in these plans.
Additionally, some investment plans like ELSS and ULIP offer tax-free returns on investment, while others like PPF and NPS provide tax-free interest and partial tax-free withdrawal on maturity, respectively. Investing in these tax-saving investment plans not only helps individuals save for their future but also provides them with the benefit of reducing their tax liability.
Convenience & Flexible
Investment plans are convenient and flexible plans for several reasons. Firstly, they offer a range of investment options that can be customized to suit the individual investor's goals and risk tolerance. Investors can choose from a variety of funds and securities. This enables them to create a diversified portfolio that can help to minimize risk and maximize returns. Secondly, investment plans are often designed to be flexible and adaptable.
Investors can typically adjust their investment allocation and contributions based on their changing financial circumstances and investment goals. For example, they may choose to increase their contributions during periods of market volatility to take advantage of buying opportunities or decrease their contributions during periods of financial hardship. In addition, many investment plans offer features such as automatic investment and dividend reinvestment, which can help to simplify the investment process and maximize returns over the long term.
Regular Income
Investment plans in India offer various options for generating regular income for investors. One popular investment plan is the Monthly Income Scheme (MIS), offered by the Indian Post Office. Another popular investment plan is the Systematic Investment Plan (SIP), which is a type of mutual fund that allows investors to invest a fixed amount of money at regular intervals. Another investment plan that can provide regular income in India is the Dividend Option of Mutual Funds. This option allows investors to receive a regular income in the form of dividends paid by the mutual fund scheme.
Another investment plan that can provide regular income in India is ULIPs which provide regular income through the maturity benefit. When the ULIP investment reaches maturity, investors receive a lump sum payout, which can be used to generate regular income through investment in fixed-income instruments such as bonds or annuities. The maturity payout amount can be invested in such instruments, which provide a regular income stream in the form of interest or annuity payments. This makes ULIPs a viable option for individuals seeking both long-term investment growth and a reliable source of retirement income.
Liquidity
Investment plans offer liquidity, which means that investors can convert their investments into cash or other forms of assets quickly and easily. This benefit of investment plans can be particularly useful in times of financial emergencies or when investors need to access their funds for unexpected expenses.
Investment plans that offer liquidity typically have different redemption periods or withdrawal terms, depending on the type of plan and investment option chosen. For example, mutual funds and stocks can be easily traded on the stock exchange, allowing investors to sell their holdings and access cash quickly. Fixed deposits, on the other hand, may have a pre-determined lock-in period, after which investors can withdraw their money with interest.
Overall, the liquidity benefit of investment plans provides investors with flexibility and allows them to manage their cash flow requirements effectively. It also helps to ensure that investors are not locked into long-term investments that may not align with their changing financial needs.
Risk Management
Investment plans can also benefit investors as a risk management tool. Investing always involves some level of risk, and investment plans offer a range of options that can help manage or mitigate potential risks. For instance, one benefit of investment plans is diversification. By investing in a variety of asset classes, investors can spread their risk and reduce the impact of any one asset class underperforming. Another risk management benefit of investment plans is that many plans are managed by experienced fund managers. These professionals have the expertise and knowledge to select the right investments and manage the portfolio effectively, helping to mitigate potential risks.
Moreover, some investment plans come with built-in safety features that offer protection against potential losses. For example, insurance plans and fixed deposits come with a guarantee that the principal amount invested will be returned, irrespective of market conditions. Overall, investment plans offer a range of options that can help manage risk and mitigate potential losses, making them a valuable tool for investors seeking to build a diversified and risk-managed portfolio.
Low-Cost Investment Options
Low-cost investment options can be a significant benefit of an investment plan because they help investors maximize their returns by reducing fees and expenses associated with investing. Low-cost investment options such as index funds, ETFs, and direct equity investment usually have lower fees and expenses than actively managed mutual funds. This means that investors can keep more of their returns as they are not paying high fees to fund managers.
Low-cost investment options can provide investors with diversification across a variety of asset classes. This is particularly important for investors who may not have the time or expertise to research individual stocks or bonds. Low-cost investment options are often more accessible to individual investors, as they may have lower minimum investment requirements compared to actively managed mutual funds.