Investment plans are important for those individuals who want to make sure that by a certain period of time they should have a certain amount of money in their bank. The investment plan acts like a huge piggy bank for anyone who wants to save their money and see their money grow over a period of time. The money in an investment plan grows according to the respective interest rate that is applied on it on a yearly basis.
For reaching a more-than-ideal financial standing over a period of time, young people should consider having an investment plan that will help them in several ways in the near or the far future.
Why Should the Young People of India Start an Investment Plan?
The young people of India have a lot of potential within them and financial problems are usually the common problem that stops the individual from reaching the goals or the wishes that they so desire. Having an investment plan from a very young age either started by the young Indian or the parents can help the child immensely in the long run.
The young people of India have goals in life that they want to accomplish. Saving up money to attain those goals is the prime objective. Investment plans help the young people in the following way:
- Investment plans help in saving up money that comes under a certain rate of interest. This rate of interest is meant to increment the money that has been deposited.
- The long term investment plans have a lock period which makes the money inaccessible to the investor. Penalty comes to those who use the investment money within the lock period.
- Investment plans are for security, safety and for a better lifestyle.
- Investments help in improving the overall investment capital.
- Fund managers and financial advisers help the investor to find a way for the perfect investment plan that gives the desired result quickly.
- Individuals are reminded of the amount of income that they get and the amount that they spend.
Best Investment Options for the Young People of India
As of today, there are a great number of investment options that are there for the people of India. The investment plan in general is divided according to the time period of the plan. There are short term investment plans and there are long term investment plans.
A short term investment plan is the preferred plan among the young people of India. The short term investment plan has a minimum tenure of one month to a maximum of twelve months. Short term investment plans have a low interest rate. The money that is invested over the period of the investment plan is kept safe. A savings bank account is the most popular type of short investment plan that the young people follow in India.
A long term investment plan is one that lasts for a minimum period of one year to a maximum of three to five years. The number of years that the plan is to be active is decided by the investor and not by the bank. These investment plans are the ones that have a locking period to them where the investor cannot touch or claim any of the money that he/she has invested. The interest rate for long term investment plans are quite generous that help the invested amount grow to a huge sum over the course of years. Mutual funds, Life insurance are two of the most common investment plans in this category.
A Guide to Choosing the Perfect Investment Plan
An investment plan is made to attain a certain financial goal in the long run. So, it is extremely important on the part of the investor to not lose sight of the ultimate goal i.e the desired financial amount at the end of the plan.
For choosing the perfect investment plan, there are a couple of questions that need to be asked by the investor. A checklist of the ideal investment plan includes:
- A fund manager or financial adviser helps in understanding your financial standing and charts out the investment plan for you step-by-step.
- Is the investment plan a short term plan or a long term plan?
- What is the interest rate of the investment plan. Always remember that the more the rate of interest, the more will be the profit from investing in the plan.
- Does the investment plan come with any sort of risk? If yes, then how much of the risk would you have to bear?
- What is the locking period for the investment plan and the penalty for breaking the rule?
- If the investment plan opted for has a high rate of interest, minimum or zero risk to the investor, has a locking period and provides a fund manager that keeps the investor updated about the proceedings of the plan, then the plan is an ideal one.
Risks of Investment Plans
Any investment, be it investing in real estate, the stocks, life insurance etc come with a certain amount of risks along with it. The lesser the amount of risks that are associated with a plan, the better the plan is for the individual.
In the case of an investment plan, there are also certain risks that are involved with the plan itself. The first self-imposed risk is the locking period risk. A locking period for an investment plan means that the invested amount in the plan cannot be changed or touched by the investor. This precaution is set in order to help the investor reach a minimum of his/her financial goal.
There are certain investment plans that charge a penalty of up to 50% of the total invested money for any individual who has to break the locking period of the plan. It is important therefore, to be careful of the locking period for different investment plans.
Investment plans also run the risk of being filed for tax. Tax can be levied on money that has been invested in the bank. There are certain investment plans like the Public Provident Fund (PPF) that exempts all task on the invested money. It is important on the part of the investor, to understand the extent to which tax can be applied on the invested money.