Beginner’s Guide to Savings and Investment Plan

2021-12-07

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A good life is usually made up of several goals and most require money one way or the other. Many goals are provided to you by the circumstances. However, you can also create many financial and non-financial goals for yourself.

Given the limited time and supply of money, you will need to prioritize and invest in these goals. Investing will help you to grow your wealth and achieve as many goals as possible for you throughout your life.

There is no rocket science for growing wealth. The wealth grows exponentially with the power of compounding. Your regular investments can eventually multiply into a substantial corpus because of the compounding interest adding to it. Various investment plans can help you grow your wealth.

However, if you are a young investor, you need to choose an investment plan for beginners that can help you multiply your savings. Very importantly, before choosing an appropriate investment plan for beginners, you must first prioritize your financial goals.

Setting Priority for your Financial Goals

Prioritizing your financial goals is the first step towards financial planning. Setting priority is based on many factors, viz. urgency, importance, money and effort, etc. One of the most suitable tools for ascertaining all these factors and setting the priority of financial goals is by creating a priority matrix.

A priority matrix is a very effective time and project management tool, which helps in quickly setting your priorities straight. It helps in keeping a track of the important activities in any project, including financial planning.

The priority matrix is based on the 4 time management quadrants. This categorizes your tasks into 2 dimensions: urgent and important, impact and effort.

A priority matrix looks like the following checkerboard diagram:

Investment Options as Per Risk Appetite

Depending upon your current risk appetite, you may invest in PPF, Equity or Debt instruments.

1. Investing for guaranteed returns and safekeeping of wealth

If savings the collected wealth is your prime concern, you can go with the investments with a fixed rate of return. These are also the best savings and investment plans for beginners:

a. Public Provident Fund

PPF is a government-backed instrument that is 100% risk-free.

b. Guaranteed Savings Plans

The maturity value is guaranteed. So, you can be sure to receive a definite amount of money at maturity.

c. Guaranteed Income Plans

Another set of long-term safe life insurance investment plans. These plans help you distribute your wealth safely.

2. Invest for growth but avoid market volatility

If you seek better growth than guaranteed investments but are not comfortable with stock market volatility, you need to take the middle path. You may invest in debt funds or investments which allow debt fund investment:

a. Debt Mutual Funds

You can invest in a number of debt mutual funds as per your risk appetite. Ranging from the safest Gilt funds, you can park your money in high risk diversified debt funds as well.

All the while avoiding the equity market risk.

b. Unit Linked Insurance Plans

ULIP allow you to allocate 100% of your investment into debt funds. Thus, you can effectively avoid equity market risk, while investing and growing your savings tax-free.

c. New Pension Scheme

NPS accounts also allow you to choose a safe portfolio based entirely on debt fund investment. However, any tax benefits will be limited to only Tier-I account.

3. Invest for high growth without a worry about time

If you have a high-risk appetite, you need to be confident about only two factors – time and market volatility. Equity and alternate asset funds could be the choice just for you:

a. Equity & Balanced Mutual Funds

Both funds allocate a large portion of your investment into equity stocks. Thus, offering aggressive growth. However, investments may face high volatility over time.

Here, using ELSS funds could also help you save tax on your income.

b. ULIP

ULIP can be your go-to investment option if you want to invest safely yet aggressively. Automatic portfolio management options add a layer of safety to your equity investment in ULIPs.

c. NPS Account

NPS allows a maximum of 50% allocation to equity funds and up to 5% to alternative assets like gold. Thus, NPS allows for aggressive growth as well.

Investment Plans for Different Life-Goals

As per your risk appetite and your life goals, you can choose between various Investment plans along with their key features which will help you to fulfil each goal.

Type of Investment Plan	Features	Life Goals Covered
ULIP	Automatic portfolio management Systematic withdrawal option	Building a large corpus Child’s higher education
Endowment plan	Guaranteed bonuses Premium protection option	Building a large corpus Protecting Family goals after your death
Money-back plan	Guaranteed Money Back payout at every 5 years Payout of the death benefit	Child’s education and marriage Protecting Family goals after your death
Retirement plan	Regular income for life Premium protection option	Regular income after retirement Protecting Family goals after your death

These are some of the best investment plans for beginners to grow their wealth.

How to Assess your Risk Appetite?

For assessing your risk appetite you must stick to three significant factors – Income, Number of dependents in your family, Knowledge of the equity market.

1. Your Income & Sources of Income

Your income is a key determinant in figuring out your risk-bearing. With higher income, you won’t mind taking bigger risks or making a big investment decision. This is because small setbacks in your financial portfolio will not affect your ability and capability to invest.

Another factor is the number of income sources you have. It pays to build more than one source of income, the earlier the better. Investors with more than one income source usually enjoy a higher investment risk capacity.

2. Number of Dependents in your Family

The more the number of dependents in your family, the more will be your responsibility towards them. Your children's higher studies and their marriage, and the medical expenses of your old age parents may increase your current financial burden. In such a situation, your risk-taking ability might be less.

Only after fulfilling your short term goals, you can take risks in the highly volatile markets.

3. Knowledge of the Equity Market

Equity assets never lose their value. However, they are exposed to high speculative risk. Thus, a thorough practical knowledge about equity is essential to growing wealth in an equity investment plan. You may start by opting for an investment plan for beginners.

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