Is a savings plan a safe way to build up my savings for the long run?

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How to safely invest in savings plans

Laxmi, aged 45 years, is a widow who runs a supermarket, and wants to build a savings corpus that can sustain her when she hangs up her boots at 60. Given the financial risks she encounters in her day-to-day business, she opted for a 15-year money back savings plan that can provide for her children’ education and also secure them financially, in case of her unexpected demise. For a sum assured of Rs.20 lakhs, she paid Rs.30,000/- monthly as the plan’s premium over a period of 12 years before she passed away in the 13th year of the policy term. During this 12-year period, she received three money back payouts of Rs.2,00,000 each, once in every four years, that helped fund her children’ education needs. As per policy guidelines, a maturity benefit of Rs. 36,00,000/-(10 times annualized premium) was paid to the children on their mother’s demise during the policy term.

Every individual aspires to have a hefty bank balance, but judicious saving of money is not everyone’s ball game. It is also not a sound investment idea to accumulate a large amount of money that’s sitting idle in the savings bank account. Instead, investing a portion of the money in a savings plan is a safer and sensible bet that can multiply an individual’s savings in a systematic manner over a period of time. Here are a few features of a savings plan that also make it a safer investment option:


Meets specific financial goals: Savings plans are customized to fulfil an individual’s specific goals – short-term and long-term over a given period of time. It trains an individual to channelize small instalments of money towards periodic premium payments in a disciplined manner. The maturity benefit of the savings plan is calculated by also considering an inflation cost estimate prevalent at the time of the plan’s maturity. At the end of the policy term, an individual would have accumulated enough savings corpus to utilize it for the purpose he had set out to save.

Life Insurance cover: A savings plan doubles up as an investment plan as well as a life insurance cover. The premium paid towards the savings plan is not only invested in assets or funds of an individual’s choice, but also serves as a protection premium towards the life insurance cover. The life insurance cover financially secures the policy holder’s beneficiary by paying out a full death benefit, in case of sudden demise of the insured.

Wide array of investment options: An individual can choose a savings plan according to his appetite for risk ranging from low to high . Investors who wish to play safe but expect some decent returns may invest in traditional savings plans whose premiums are spread across fixed income assets owing to low risk and guarantee an assured sum of money at the end of the policy term. Some of these low risk savings plans also entitle the policy holder to partial withdrawals and money back payouts during the policy term providing adequate liquidity to the policy holder in the short-term. On the other hand, a unit-linked insurance plan (ULIP) would be a suitable choice of a savings plan for an individual who expects better returns for a medium to high risk investment spread across debt and equity funds. The Future Generali Easy Invest Online plan is one such ULIP that allows an individual to invest in their choice of funds over a maximum period of 20 years and enhances the returns with loyalty additions.

Flexibility to review portfolio: Every investment portfolio needs to be kept track of and needs a relook at regular time intervals. Savings plan like ULIPs allow for switching between a variety of funds based on their performance. In case an invested fund does not perform consistently during a given time period, the investor can avail this facility and switch to a fund that has registered better growth. Similarly, the investor may also invest aggressively for higher returns by switching to high-risk funds. Keeping track of the portfolio and diversifying it regularly can help improve the savings returns.

Wealth creation in the long-run: Savings plans reap higher benefits when invested during a longer course of time, and a saving plan would have no relevance if the invested savings do not grow. For traditional and conventional savings plans, the longer the policy term, the larger the maturity benefits and any bonuses applicable. Similarly, ULIP returns that are market-linked also fetch bulk returns over a longer time duration, since it takes time to withstand the market fluctuations and risks.

Conclusion

In the present day and age, prospective customers are constantly bombarded with a variety of investment products that can multiply their money. However, it is important to remember that there is a limit to the growth of savings, and a consistent investment of funds is key to accumulation of savings and creation of wealth in the long-term. Thus, while the above features may broadly define the working of a savings plan and its safety valves, it is completely left to an individual’s discretion and judgement based on his goals, to choose a savings plan that can create wealth for him in the long-run. Above all, patience is a virtue that an individual should possess for the investment results to show.

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