Have you been looking for a personal finance guide that gives you ideal financial products for various financial needs? Well, you’re in luck because we’ve put together a handy little guide just for you. Let’s start with tax planning.
Help! Which are the ideal financial products for tax planning?
When you select investment products under Section 80C of the Income Tax Act, think about investing in a mixed range of products. Choose a mix that will allow you to safeguard your capital and save on taxes too. Your investment should also have the potential for wealth creation.
An Equity Linked Savings Scheme offers an investor wealth accumulation as well as tax benefits. Equity Linked Savings Schemes have the lowest lock-in period among tax saving instruments: only 3 years.
Investment in the Public Provident Fund gives investors an assured interest income. However, these investments are for the long-term, with a 15 year maturity period, during which the account cannot be closed.
Depending on your comfort level with financial risks and your investment horizon, you can decide whether you want to invest more in an ELSS or PPF.
Remember that the maximum you can invest under Section 80C is Rs. 1,50,000. However, an additional investment up to Rs. 50,000 can be made in the National Pension Scheme under Section 80CCD(2) of the Income Tax Act. This investment in the NPS is completely tax-free. Thinking of creating a retirement fund? The National Pension Scheme is your investment of choice.
Help! Which are the ideal financial products to invest in for post-retirement income?
If you are contemplating building your retirement fund, you could consider a few other investment instruments apart from the National Pension Scheme or pension from the government.
A Senior Citizen Savings Scheme is a good investment that gives you guaranteed returns. The present interest rate on this scheme is 8.6% with effect from 1st April 2016. You can also avail of tax deductions up to Rs. 1,50,000 under Section 80C of the Income Tax Act.
An investor can invest a maximum amount of Rs. 15 lakh per annum in a Senior Citizen Savings Scheme. Remember, the interest on a Senior Citizen Savings Scheme is paid out every quarter on the first business day of January, April, July, and October.
Another good retirement savings option that will give you income during your golden years is a Tax Saver Fixed Deposit. A combination of regular bank Fixed Deposits and Tax Saver Fixed Deposits will give retired folk a constant flow of income.
Help! Which are the financial products that will preserve my capital?
Many investors look for investment options that can ensure the safety of their invested corpus. Keep in mind that though Fixed Deposits give depositors capital security, they are not a very tax-efficient investment option.
Tax-free Bonds are a more feasible investment choice. These are issued by government-backed companies. Tax-free Bonds give investors a better level of capital safety when compared to other investment products. But remember that Fixed Deposits are much easier to liquidate compared to Tax-free Bonds which come with a longer deposit tenure of 10 years or 20 years.
The interest rates on Tax-free Bonds are benchmarked against government securities of a similar tenure. Currently, the interest rate on Tax-free Bonds is 7.75%.
Help! Which are the ideal financial products for wealth accumulation?
Try your hand at investing in diversified equity funds and Balanced Funds with dynamic asset allocation. It is important to choose investments that offer high returns if you want to build a sizable corpus. This will help you achieve your financial goals such as building a retirement fund, buying a house, and so on.
Have a constant cash flow at your disposal? Consider going the SIP way and invest in various Equity Mutual Funds. Not too comfortable with the volatility of equity funds? An alternative would be Balanced Funds. You can opt for dynamic asset allocation, which would automate the allocation of assets across equity and debt instruments. This will give your investment portfolio a certain degree of stability, depending on market trends.
Additional Reading: Understanding Mutual Funds
SOS! I need money for emergencies
The ideal financial product in which you should stash away your emergency funds is not a Savings Account. Are you going to be content with the low interest that a run-of-the-mill Savings Account gives you? No? We thought not. Here’s an idea. For optimal returns on your emergency fund, lock it away in a Fixed Deposit Sweep-in account or in Liquid Funds. An emergency fund should ideally have a minimum of six months of your salary. This will be your financial cushion in case of unforeseen events.
Must Read: How To Create An Emergency Fund
You could put away 3 months’ worth of your income in a Sweep-in Fixed Deposit. A Sweep-in Fixed Deposit works automatically because a fixed amount of money beyond a certain limit is transferred into a Fixed Deposit that is linked to your Savings Account. Simply put, a Fixed Deposit earns a higher rate of interest than a regular Savings Account. It’s a win-win situation, really.
Need money in a hurry? You can get it by withdrawing the required amount from your Fixed Deposit.
Help! Insurance – what’s that?
Let’s put it to you simply. It is very important to choose the right insurance products, depending on your life stage and specific requirements. Medical costs are going through the roof so it definitely pays to be prepared for a medical emergency. To ensure the protection of your loved ones in case of a medical emergency or your demise, you could consider Health Insurance and a Term Life Insurance plan. You should think about supplementing your regular insurance policy with an Accident Disability cover. This would financially secure your family in case you (the policyholder) are incapacitated due to an unfortunate accident.
Just Health Insurance, Term Insurance or Life Insurance will not be sufficient to ensure that your family’s financial future is hassle-free. You need to think about their and your health as well. Plan for any eventuality with a Family Floater Health Insurance Policy. It will help tide you over a medical emergency without having an impact on your savings. You must opt for a Family Floater policy that will reimburse any hospital expenses that you might incur. It is also important to think about securing your health with a Critical Illness rider which will protect you against the high costs of dealing with various diseases like cancer.
So there you have it. Your quick guide to the ideal financial products for all your financial needs.