In this day and age, with the financial crisis on the rise, it is important to develop investment and savings plans to grow your net worth steadily. Life can throw unexpected circumstances at any time as change is the only constant. Therefore, being prepared is a viable solution to deal with the growing stress of wealth management.

What are investment plans?

Investment plans are financial instruments that assist in growing the wealth you have in a methodical format. Instead of keeping your money protected in the bank or in a home safe, you can redirect the amount in investment plans to grow your wealth with a structural plan. Investment plans are essentially the means to make your money work for you.

Investment plans come in many forms, from insurance to savings plans. You can prepare long or short-term investment plans based on your financial requirements. You can also diversify these investments into the following types:

  1. High-risk investment plans that allow you to secure equity to grow your wealth. These types of investments also offer high returns for the risk due to the volatility of the market.
  2. Low-risk investments that allow you to imbue your wealth in safer funds such as debt funds and liquid funds. These types of investments offer lower returns, but your money is always safe and guaranteed to return to you.
  3. Balanced risk investments that allow you to diversify your portfolio. These investments help manage your risk appetite effectively with a perfect balance of high and low-risk investments.

Investing is a viable solution to growing your wealth systematically and steadily without increasing your workload. While you work for a portion of your wealth, the remainder of your wealth works for you to keep growing and securing your future.

How do investment plans differ from savings plans?

It is a common misconception that investment plans and savings plans are the same. While Investment plans to grow your wealth, savings plans securely preserve your wealth. Both have equally important benefits in securing your present and future and the future of your loved ones. However, the nature of investments vs savings is drastically different.

Investment plans are systematic growth of your wealth through risky ventures that offer undetermined profits. Savings plans, on the other hand, are a means of protecting your wealth with slow but steady returns.

For instance, if you purchased a Unit-linked insurance plan, you can invest your money in the unit-linked market through the insurer. Based on your risk appetite, you could invest in equity funds, debt funds, or mixed funds. As the market prices grow, the value of your ULIP investments also multiply. Let’s assume you invested 5 lacs in the market that grew steadily to provide 10% returns. You immediately have a profit of INR 50,000. You could withdraw your profits or let your investment grow further. The undetermined increase could very well double your investment if the market is in your favour.

Savings plans work in a different way. If you invested INR 5 lacs in a fixed deposit, your money will still grow. However, the returns are predetermined by a certain percentage or amount. Therefore, assuming the percentage increase offered on your FD is 5%, then your wealth in the FD will grow by INR 25,000 annually. It will grow steadily, but your profits are capped.

You can choose to secure your wealth through investment plans or savings plans based on your risk appetite.

Types of investment and savings plans for young Indians

There are different types of investment plans, which are as follows:

  1. Equity shares and equity mutual funds – These allow you to invest in the current share market. You can prepare to invest in them directly using Demat accounts or through a third party in mutual funds.
  2. ULIPs – These are life insurance plans that allow you to invest in unit-linked markets through your insurer. You can choose your investment portfolio and grow your wealth while simultaneously protecting the future of your loved ones with the insurance benefits.
  3. Equity funds in NPS – You can purchase equity in the National Pension Scheme to grow your wealth and secure your golden years effectively.
  4. Debt mutual funds – You can also invest your money in safer government and private contracts and certificates that steadily grow the debt market. You can invest in these through mutual funds wherein a third party can manage the funds for you.

While these investment plans offer high benefits due to the higher risk, you can also opt for safer, low-risk options that involve the element of savings plan such as Fixed deposits, Provident Funds, and National Savings Certificates. They allow you to build an investment habit and offer small but significant returns to grow your wealth.

Essentially, savings plans can act as investment plans and vice versa based on your risk appetite. You can choose the best investment plans to grow your wealth based on your current and probable future financial needs.