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Why Do You Need Investment Plans?

Joan Mathews Joan Mathews 14 January 2020

Investments are necessary as they help individuals accomplish their financial goals and provide cushion for unforeseen expenses that may arise in the future. Read this article to find out what are the benefits of putting money into different investment plans.

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Investing plays a vital role in wealth creation. While one can earn regular income through their jobs, investments present the opportunity to increase the individual’s financial worth. Investing is the act of committing funds to an endeavour (a financial vehicle), with the intent of earning an additional income. It helps to meet one's financial objectives and provides corpus for unforeseen expenses that might come up in the future. The earnings from investments can be in the form of interest, financial profit, appreciation of asset value, etc.

Types of Investments

In India, investors have a range of investment options to choose from. Some are traditional investments, while others are relatively newer options, which have become popular in recent times. Here is a look at top investment plans available in the country:

  • Unit Linked Insurance Plans - ULIPs are insurance-cum-investment products offered by insurance companies. Investors/policyholders can benefit from a life insurance cover as well as market-linked returns. They come with a lock-in period of 5 years - which in turn helps the investor inculcate a disciplined investing habit.
  • Individuals are given the option to invest in growth, equity, balanced or income funds, as per their risk appetite and financial goals. Tax benefits can be claimed under Section 80C of the Income Tax Act, 1961, for the premiums paid toward the policy. Additionally, proceeds from the policy are completely tax-free in the hands of the receiver under Section 10(10D) of the Act.

  • Mutual Funds - This is an investment vehicle in which investors pool money to earn optimum returns. Different kinds of mutual funds invest in different securities. Debt mutual funds park money in bonds and papers, while equity mutual funds invest predominantly in stocks and equity-related instruments. Then, there are hybrid mutual funds that invest in a mixture of debt and equity securities.

  • If an investor sells equity mutual funds after a year, he or she has to incur LTCG tax of 10% on returns of over Rs. 1 lakh in a financial year. In case equity mutual funds are sold before a year, the gains are treated as short-term capital gains and taxed at 15%. Likewise, when debt mutual fund investments are sold after three years, the returns are treated as LTCG and taxed at 20% with indexation benefit. Returns from debt mutual funds used to meet short-term goals are also taxable.

  • Bank Fixed Deposits - FDs are financial instruments that provide investors a higher rate of interest when compared with a regular savings account. They offer capital protection and guaranteed returns. When an individual puts money in a fixed deposit account, his or her money is locked for a specific duration, and the principal sum earns interest on a cumulative basis. The tenure of fixed deposits typically ranges from 7 days to 10 years.

  • Fixed deposits are best-suited for conservative or risk-averse investors. The account-holder will receive an assured sum of money at the end of the maturity period. There are tax-saver FDs that enable depositors to claim tax benefits under Section 80C of the Income Tax Act. However, it must be noted that the interest earned on such FDs is taxable.

  • Public Provident Fund - This is among the popular long-term tax-saving investment products. It is backed by the government, who decides its rate every quarter. PPF has a minimum tenure of 15 years, which can be extended by a block of 5 years.

  • Tax deduction can be claimed under Section 80C of the Income Tax Act for all the deposits made toward a PPF account. The accumulated amount as well as the interest earned are exempt from tax at the time of withdrawal. They are ideal for investors who are risk-averse and are seeking long-term capital appreciation.

  • Senior Citizens' Saving Scheme - SCSS is a government-backed savings instrument specially designed for individuals over 60 years of age. It offers capital protection and quarterly interest payment (as a source of income). SCSS can be opted for through certified banks and post offices.

One can invest a maximum amount of Rs. 15 lakhs into an SCSS account. The amount invested cannot surpass the money received on retirement. Tax deduction of up to Rs. 1,50,000 can be claimed under Section 80C of the Indian Tax Act.


As seen above, investment plans help individuals to save regularly and be adequately prepared to meet the financial needs in the future. Now, along with investing in financial products that provide the opportunity to create wealth, investors are advised to have a financial safety net in the form of life insurance cover in place. It will protect the loved ones of the policyholder/investor, should the individual be no more.

There are a range of investment plans in the market with varying features and benefits. While selecting an investment plan, it is important to match the individual’s own risk profile with the risks associated with the product. Users should also take into account elements like expected returns, investment term, asset allocation and investment fees before investing.

Joan Mathews
Written by Joan Mathews
Joan has over 4 years of experience writing for the BFSI industry. She enjoys watching mystery TV series, listening to 80s classics and spending time with her furbabies.