What do you want to accomplish in the next 5-6 years? Travel to Europe with your best buddy? Park the latest car in your garage? Buy your dream home? Or start saving to send your child to the top-most university?
Whatever you wish for, one thing is clear: to reach these milestones you need to set clear financial goals. And interestingly, the process of setting your financial goals isn't so different from setting other types of goal. However, the strategies and investments, that you use to accomplish your financial goals may differ.
Juggling multiple goals and figuring out how to save and invest for each goal can be daunting. So, for those who find this task overwhelming or simply lack the investment knowledge, here are four savings plan to help achieve your financial goals by 2025:
1. Unit-linked Insurance Plans (ULIPs)
One of the most popular wealth creation instruments today, ULIPs offers dual benefits of investment and insurance. Meaning, the premium paid is used for providing you with life cover and investment in money market instruments. Here's why you should invest in ULIPs:
Benefit from long-term growth:
Lock-in period in ULIPs is 5 years. By paying the premiums for a greater period, you can invest in the market for a longer tenure and receive higher returns.
ULIPs allow you to switch between debt, equity and balanced funds as per your risk appetite or changing goals. The cherry on the cake is that reputed insurers like Future Generali allow free switching of funds. Also, some insurers do not levy any premium allocation and policy administration charge.
Enjoy tax-free returns:
When you invest in ULIPs, you get tax deductions on the premiums paid under Section 80C of IT Act, 1961. Also, the maturity benefits are entirely tax-free (Section 10 (10D).
In general, ULIPs are a phenomenal choice for meeting pivotal goals, for example, buying a home, funding children's higher education, retirement corpus building etc.
When it comes to investing in ULIPs, you can compare the costs and returns of different plans using a ULIP return calculator.
2. ELSS Funds
Whether you are a first-time investor having moderate risk-appetite or a high-risk taker, ELSS funds are designed for all kinds of investors. Following are the benefits of investing in ELSS funds:
Flexibility: Invest as per your convenience by choosing SIP or lump sum investment
Ride the long-term value growth: Stay invested for long-term to benefit from the growth cycle of stocks in your portfolio and increase your chances of higher returns
Tax saving: Avail tax benefits up to Rs. 1.5 lakhs under Section 80C
Expert Management: Funds are managed by experienced professionals based on extensive market research
Inculcate saving habit: Invest systematically with amount as low as Rs. 500 per month
3. Bank Fixed Deposits
Considered as the safest and the most hassle-free investment options, fixed deposits allow you to deposit a fixed sum for a specific period and earn interest at a fixed rate of return. Whether you are risk-averse or a risk taker, a fixed deposit is a form of investment that suits all. The advantage of investing in fixed deposits include:
- Risk-free investment with assured returns
- Complete flexibility with regard to the tenure - 7 days to 10 years
- You can avail loans or overdrafts against fixed deposits
- It is a liquid investment
4. Mutual Funds
Investors who wish to explore and benefit from equities and debts can invest in mutual funds. One of the best ways to invest in mutual funds is through SIP modeby making small regular investments. Benefits of investing in mutual funds include:
Higher returns: Investing in mutual funds is an excellent way to enjoy higher returns, thanks to portfolio diversification, rupee-cost averaging and many other factors
Disciplined investing: By starting a SIP in a mutual fund, you are investing a certain amount consistently on the same day for a certain number of months/ years
No lock-in: Most mutual funds do not have any lock-in period, except ELSS funds which have a lock-in period of 3 years
Diversification: To reduce your risk, you can spread your investments across different asset classes and stocks
Accomplishing financial freedom has nothing to do with magic or luck. It's all about setting the right financial goals and making prudent investments to achieve them.
In order to achieve your goals, therefore, it is best to emphasis on boosting returns with investments like ELSS funds and ULIPs. Moreover, when it comes to choosing asset allocation within instruments like ULIPs, you can take help from a ULIP return calculator.