The current economic scenario is pretty volatile; therefore, stringent planning has to be done for the future. With planning, it also refers to finding avenues that are stamped with reliability in terms of growth and protection of your wealth. Out of many such financial tools available, saving schemes and endowment policies have created a special market since they can combine features of insurance with features of saving.
What Are Saving Schemes?
Saving schemes are schemes specifically designed to help people save at regular intervals. It could be the Government, a bank, or any other financial institution offering a saving scheme, to which people save their money.
There are several types of saving schemes to cater to the kinds of needs and financial goals. Some of the most popular include:
1. Public Provident Fund: This is a government scheme for the long term granting benefits with tax under section 80C of the Income Tax Act. The PPF accounts run generally 15 years and are supported by an attractive rate of interest; hence, it has been quite popular among the section of people saving for retirement.
2. National Savings Certificate (NSC): It is again a fixed-income investment run by the government. This investment could also be counted towards the tax-saving investment under Section 80C. The interest in NSC is accrued annually, although this interest is payable only when the certificate matures.
3. RDs (Recurring Deposits): Both banks and post offices offer RDs, in which a fixed sum of money is put into their savings at regular intervals. The interest charges on RDs are strictly higher than those of the Savings Account, with tenure between 6 months and 10 years.
4. Senior Citizens Savings Scheme: Here senior citizens over sixty years enjoy better benefits on their interest rate besides added tax gains. This scheme makes up for one of the safest ways to save for all the retiring people.
5. Fixed Deposits (FD): A traditional saving instrument in which you deposit a lump-sum amount for a fixed tenure at a predetermined interest rate. FDs guarantee schemes that return with very low risks.
Benefits of Saving Schemes
· Safety and Security: Most of the saving schemes, more so the ones backed by the government, entail a high rate of safety. The chances of money getting stuck are almost negligible, hence making options perfectly safe, even for those who are risk-averse investors.
· Guaranteed Returns: Saving schemes are good because they assure returns, either fixed or periodic in terms of revision, which would make financial planning easy for you.
· Tax Benefits: Most of the savings schemes are for tax exemption under Sec 80C, which enables you to bring about a reduction in your taxable income. Moreover, even interest earned on some of the schemes would be exempt from tax, enhancing your returns further.
What is an Endowment Policy?
An endowment policy gives life coverage together with a corpus of savings after a specified period. A product similar to a term insurance plan pays on death. An assured policy tends to offer the result of maturity if the policyholder dies before the policy can result in investment.
How does It Work?
When an individual purchases an endowment policy, he pays a regular premium for a particular term. In return, the insurer agrees to provide life cover throughout the term of the policy. If death occurs during that term, the sum assured with the addition of bonuses will be received by the nominee or nominees.
Benefits of Endowment Policies
There are many benefits of an endowment policy to make it a very good financial investment. The key benefits include:
· Dual Benefit: The endowment policy offers dual benefits: it protects your life in case of an eventuality in life, and at the same time offers savings. This means that at the same time as an individual secures the future of his or her family, he or she is also building his or her corpus for a long period.
· Maturity Benefits: This is the benefit arising from the current policy. A single lump sum which includes the sum assured and the bonuses accrued on that sum is receivable by the customers at the maturity of the policy. This lump sum coming a customer’s way can be put into numerous purposes for making a purchase. Purchases could be housing for children, education, and retirement plans.
· Tax Benefits: Premiums paid in respect of an endowment policy are exempt from tax under Section 80C of the Income Tax Act. The maturity proceeds are also exempt from tax under Section 10(10D) subject to certain conditions being met about the policy.
· Financial Discipline: Paying premiums regularly instigates financial discipline within oneself and ultimately results in regular savings over the years of the policy.
· Low-Risk Investment: The endowment policies, by nature, are a low-risk investment because they come with assured returns together with life coverage.
Comparison between Saving Schemes and Endowment Policies
They differ in that they are set out for different purposes, meaning they have different features.
· Objective: These policies deliver a guaranteed return and are issued to save systematically. The endowment of life as well as savings is covered under the endowment plans.
· Risk and Returns: The saving schemes, especially those that are government-backed, accord very low risks with assured returns. The endowment policies do not only serve the purpose of savings but also life coverage.
·Tax Benefits: Under section 80C, tax benefits can be claimed on saving schemes and endowment policies. In other words, endowment policies also grant the benefit of tax-free maturity under section 10(10D) of the IT Act with certain conditions.
Conclusion
Combining the features of endowment policies with saving schemes should provide a method of ensuring the balanced creation of wealth and economic security. To insured people, the endowment policy offers something less than life coverage, in the sense that it allows a saving scheme, thus guaranteeing a safe return. It can be your guide and, alternatively, a wise decision that will fit well with savers’ objectives and risk appetite, be it retirement planning or protection of the future of the family or corpus through savings.
Rockies Ripple is the founder and lead writer behind the independent blog tvplutos.com