“Someone’s sitting in the shade today because someone planted a tree, a long time ago” – these words of wisdom by Warren Buffet aptly summarise the essence of personal finance planning, especially the power of long-term investments. A robust financial planning today is one’s strongest shield from the uncertainties of the future. As the world continues to grapple with market volatility, rapid inflation and uncertainty looming large after the pandemic, it’s time to reconsider financial decisions. Retail inflation in India has been pointing north for quite some time now. While it marginally eased by clocking 7.01% in June, the rate still surpasses the RBI’s tolerance limit of 6% for six consecutive months.
These figures represent the direct impact on one’s financial planning or the lack thereof. These factors illustrate a pressing need for investing and building a sizeable corpus to secure one’s future. If you’ve been a reluctant investor and haven’t allocated your funds for further growth, you need to be cognizant of the impact of both inflation and depreciation. On one hand, your money is ill-equipped to endure the rising rate of inflation, on the other hand, by not investing, you are holding on to a constantly depreciating and devaluing asset. While it’s great to plan your finances for a lifetime, given the uncertainty of life, it’s equally important to plan for your dependents. And so, parking your money in the right investment-cum-insurance products is a non-negotiable financial decision now.
Beating real negative interest for traditional investors
Quite understandably, investing might not be for everyone, more so, for those who do not know how to navigate a volatile market. Often, the savings in this case are earmarked for traditional options like FD. While this used to be a great option until a few years ago with an 8-9% return rate, the falling interest rates in recent years don’t make it so appealing anymore. Add the tax element and the inflation rate to your gains, and you might actually be looking at getting real negative returns. Instead, risk-sensitive investors can explore options like guaranteed return plans where they can allot their savings to meet long-term life goals, like retirement planning or children’s education. What makes them better? Higher rate of return, tax-free interest, fixed rate of return irrespective of the market fluctuations and tax benefits due to the insurance element.
Gaining from the upside of the market alongside security
If you are someone who likes to tap the potential of compounding, there are quite a few options that will fetch you this along with a financial safety net. Unit-linked Insurance Plans (Ulips) are one such option chosen by optimistic investors. Depending on the market, this instrument can reap a 12-15% rate of return which goes a long way in meeting your milestones. Even with the flexibility and ease of liquidity, the investor should still take a leap of at least 15-20 years if they want to make the best of this investment. They can even easily switch between equity and debt as per their preference, which makes this option ideal for those who have a fair idea of the market conditions.
Safeguarding the future of your dependents
The world is riddled with uncertainties and no amount of anticipation can predict what can go wrong at any point. While one can’t prevent an unfortunate event, one can surely plan and prepare ahead to avert any adversities. Therefore, insurance has become an indispensable element of financial planning now. There are several great investment options in the market, but the unique selling proposition of investment-cum-insurance products is the value they continue to provide even in your absence. These plans ensure that the family gets the life cover to meet immediate as well as long-term expenses in the unfortunate event of the policyholder’s untimely demise. What’s more? If you make these investments for your children, they also come with a unique waiver of premium features. What this means is that in case of the policy proposer’s death, the premiums shall be waived off and borne by the insurance company.
Given the current macro environment, it is important to carefully consider each of these factors before you proceed to invest your valuable, hard-earned money. There are other such products as well, like the Capital Guarantee that let you combine the guaranteed return with the market-linked return and have the best of both worlds. Depending on your preference and needs, do not forget to reassess your investment options for maximum benefits.
Views expressed above are the author’s own.
END OF ARTICLE