Check out this guide to make smart investment decisions that not only offer significant tax benefits but also help grow your wealth.
For those for whom predictability and safety are at the top of their wish list when it comes to investments, guaranteed return plans are a safe bet. (Representative image)
As 2024 approaches and we step into 2025, there is a palpable energy around financial planning during this time of year. With the start of the new year, many people will be setting fresh resolutions, a significant number of which will revolve around finances. In just a few months, the end of the financial year will also be upon us. This period is not just about celebrations; This is a great opportunity to reflect on financial choices made over the past year and strategically align your investment portfolio with tax saving opportunities.
In this effort to balance celebration with responsibility, here’s a guide to help you. Smart investment decisions Which not only offer significant tax benefits, but also help you grow your wealth substantially over time.
Safety and stability with guaranteed return plans
For those for whom predictability and safety are at the top of their wish list when it comes to investments, guaranteed return plans are a safe bet. As the name suggests, these plans offer a fixed rate of return on your investment during the policy period. They are not affected by market fluctuations, which makes them excellent investment opportunities for risk-averse investors. Withdrawals and payments are predetermined and scheduled, which is really helpful in planning one’s future. The cherry on the cake? Returns are as high as 7%.
Another outstanding feature of guaranteed repayment plans is that they offer a lot of flexibility in terms of repayment options. So these plans are perfect for retirement planning, and equally useful for planning important milestones like children’s marriages or their education.
Additionally, guaranteed return plans also offer tax benefits under Section 80C of the Income Tax Act. You can claim deductions up to Rs 1.5 lakh per year. And the best part is that the returns on these plans are also tax free.
Double benefit of growth and insurance with ULIPs
Next on the list are Unit Linked Insurance Plans, also known as ULIPs. These plans are truly versatile investment options that combine the safety of life insurance with wealth creation potential. A combination of equity, debt funds and insurance, ULIPs allow you to benefit from market upside, if you go for the long term. You can also decide how the investment portion is allocated. Depending on your time horizon and risk appetite, as well as current market conditions, you can choose to invest in equity or debt, or both. You also get the flexibility to switch between funds as your needs, goals and circumstances change or as market realities evolve.
The dual benefit of insurance and investment helps you build a significant corpus over time while also protecting your loved ones financially in case something happens to you. And on top of that, these plans also offer tax benefits under Section 80C. The best part is that if you invest up to Rs 2.5 lakh per annum, the maturity amount is also 100% tax exempt. This feature is unique to ULIPs and is not available in any other form of equity investment including direct equity or mutual funds. In other equity products, one has to pay 12.5% long-term capital gains tax (LTCG) on profits above Rs 1.25 lakh. No such tax is applicable on ULIPs unless the investment amount exceeds Rs 2.5 lakh per annum.
Securing your retirement with ULIP pension plans
If your goal is to save for retirement, there are specific types of ULIPs that are designed specifically for this purpose. These are called ULIP pension plans and are meant for people who want to build a strong retirement corpus. They also come with the same tax benefits. What makes them different is the flexibility they offer in terms of payments.
When you retire, you can withdraw up to 60 percent of your accumulated corpus as a lump sum. The rest remains invested and ensures a steady stream of income for the rest of your life. After retirement, these plans offer flexibility in accessing your funds. You can withdraw up to 60% of your corpus as a lump sum, while the rest can be converted into an annuity to ensure a steady income for life. The power of compounding keeps adding to your returns even when you withdraw funds periodically.
Premium payments for these plans are tax-deductible, making them an excellent choice for tax-efficient retirement planning. Many of these plans come with the added feature of a “pension booster”, wherein the premiums you have paid are refunded at the end of the policy term. This further increases your return on investment.
Stability and Growth with Capital Guarantee Plans
If you’re looking for both predictable and market returns, you can look into a plan that combines the strengths of market-linked plans and guaranteed return plans – capital guarantee plans. These projects strike a balance between capital preservation and development. Your investments are mainly divided between guaranteed return plans and ULIPs. The former aims to protect 100% of your principal while the latter aims to provide market linked growth. These plans are suitable for medium to long-term financial goals such as funding higher education, building an emergency fund or buying a home. These plans also offer tax deductions under Section 80C.
It is best to assess your risk appetite, long-term and short-term goals before investing. It is also recommended to compare features and benefits online or consult a financial advisor to get a better understanding of the products you choose.
– The author is Head of Policy Market Investments. The views expressed are personal.
Disclaimer: The views and investment tips of the experts in this News18.com report are their own and not those of the website or its management. Readers are advised to consult qualified experts before making any investment decision.