Types of Investment Plans You Must Know
The thought of investing your hard-earned money in different schemes to get attractive returns can be pretty intimidating. There are too many investment plans in the market like ULIP Investment, mutual funds, NPS, and each works differently. If you are a first-time investor, figuring out which investment option is suitable for you can be challenging.
So, in this guide, we discuss some of the most popular investment plans available to you in India and help you choose the right plans you want to include in your portfolio.
Unit-Linked Insurance Plan or ULIP is a unique financial instrument that offers dual benefits of insurance protection and wealth creation. When you pay the premium, the insurer uses a specific percentage of the amount to provide insurance coverage and invests the balance amount in different asset classes of your choice.
You can choose to invest in different funds to suit your risk-taking capacity and long-term goals. ULIP investment is a great way to accumulate a sizeable corpus for long-term goals like accumulating wealth for children’s education, building a retirement home, etc. However, the key to getting good returns from ULIP is to remain invested for at least 15-20 years or more.
Historically, ULIPs have offered returns in the range of 12-15% over an investment period of at least 15 years. If you are a first-time investor, you can use the ULIP calculator to know the estimated returns on your investment and adjust your portfolio accordingly to meet your goals.
Fixed Deposit or FD offered by banks and post offices is the most traditional investment plan in India. Many people, especially risk-averse investors, prefer investing in FDs as it offers assured returns with zero risk of capital loss. However, the interest you get from FD is nominal in the 4-6% range, which is not enough to beat inflation. Besides, the interest income from FD is taxable, which further reduces your earnings.
- Mutual Funds
Mutual funds are one of the most popular investment schemes in India. In mutual funds, the fund house pools money from different investors and invests the amount in different assets like equity and debt funds, government bonds, corporate bonds, and shares to generate valuable returns for all.
The best thing about mutual funds is that the fund house has an expert portfolio or fund manager who manages your investments. The returns on the mutual funds are taxable as per the holding period. If you hold the assets for less than 12 months, STCG or short-term capital gains will be applicable. For investments you hold for more than 12 months, LTCG or long-term capital gains will be applied.
National Pension System, or NPS, is a long-term investment scheme offered by the government of India. This scheme is specially designed to cater to your financial needs after retirement. In this scheme, you voluntarily invest a small amount periodically in your pension fund throughout your working years. When you retire, you can use the accumulated funds in your pension account to draw a regular pension and be financially independent in your post-retirement life.
It is a suitable investment for all and is also considered one of the most tax-efficient investment options in India. The amount you contribute towards your pension account is eligible for tax deduction under Section 80C of the Indian Income Tax Act. Also, the returns you get from NPS are tax-free.
Now that you are aware of different types of investment plans in India, do your due diligence, assess your needs and invest in any one or more than one of these plans to accomplish your financial goals.