Independence Day Special: Achieving financial independence with robust investment planning

Given the current circumstances, especially after the pandemic, it has become all the more important to gain financial stability with smart investments.

Independence Day Special: Achieving financial independence with robust investment planning
If you want your finances to help you sail comfortably through your milestones, the right time to invest is now.

While financial independence is often perceived as possessing ample funds, in reality, it can mean different things to different people. Some might view financial independence as saving up enough to live lavishly in the moment, while others might see it from the perspective of meeting lifelong goals comfortably. While your financial characteristic and life goals might be variable, what remains constant is the fact that it takes thoughtful investments and robust planning to meet those goals. Not to forget, there are external factors that majorly influence your financial needs. Medical expenditure, education costs and rising inflation are some of the factors that necessitate planning your financial independence well in advance.

Contrary to the common notion, savings alone is not the route to achieving a sizeable corpus. Financial planning means keeping up with inflation and making one’s money grow with smart investments. For instance, most people aren’t agile enough when it comes to their retirement planning, especially during the course of their working years. However, even if you are just starting out, it’s actually never too early to start planning for your non-earning years. Therefore, if you want your finances to help you sail comfortably through your milestones, the right time to invest is now. Here’s what you should know about attaining financial freedom:

Navigating investments for the risk-averse

As we have witnessed the market trends during the pandemic, the key takeaway is to not wait out the economic downturn completely before you invest. The markets might never be as favourable as you’d want them to be and as a result, it might be too late! However, if the idea of investing in a volatile market is not your cup of tea, there are abundant options available for risk-averse investors. A guaranteed return plan, for instance, is one such strategy to wade through choppy waters. These plans come with a guaranteed rate of return that is locked at the time of purchasing the plan.

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Unlike traditional savings options like FD, the return on these investments is completely tax-free and the investment is also eligible for tax rebates under Section 10 (10D) due to the life insurance component. The new-age plans in this category come with short-term lock-in, ease of liquidity, and offer a return as high as 6.14% which is a considerable gain in the long run compared to other traditional savings options.

Another low-risk option, especially suitable for retirement planning, is the annuity plan. If you have a corpus ready, you can go for immediate or deferred annuity plans and start receiving fixed income or a lumpsum amount as per your preference. At a time of low-interest rates, annuity plans eliminate the re-investment risk and guarantee fixed payouts at regular time periods.

Investing with a risk appetite

The adage – no risk, no gain – exists for a reason. Those who are willing to lay their bets on the markets, irrespective of the fluctuations, are also the ones who get to enjoy its upside. One such option that can be considered by investors is the ULIP or Unit linked Insurance Plan. An instrument with dual benefits, ULIP comes with the option to switch funds between equity and debt, along with the life cover element. The returns in this plan are tax-free and can run as high as 12-15% if the investor is willing to go in for the long haul and has the know-how of the market conditions. Coming to tax benefits, the plan is eligible for a tax rebate under Section 80C up to a limit of Rs 1.5 lakh on the annual premium paid from the taxable salary. Also, the investment is tax-free for an annual premium of up to Rs 2.5 lakh under Section 10 (10)D. 

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Those with a moderate risk appetite can also opt for a capital guarantee solution which is a hybrid of traditional plans and ULIPs. The plans offer the best of both worlds with risk and guarantee in proportionate measures. Under these plans, 50-60% of the amount goes into guaranteed return plans and the rest is invested in equity. These plans provide 100% security to your principal amount, so you can have both financial security as well as wealth creation opportunity. Not to forget, they also come with tax component owing to the life insurance element and tax-free gains. 

Keep reviewing your portfolio

After you have picked your preferred investment instrument(s), it’s time to periodically review your portfolio and see if the investment suffices your changing needs. For instance, if you are investing in your child’s education, it is advised that you rebalance your portfolio annually in line with expanding education inflation. Simply put, rebalancing means gaining the returns of high-performing assets and looking for newer options that might perform in the long term. It also means changing your preferences as per market conditions and treading carefully to not lose out on returns. 

In addition to high, tax-free returns and maturity, these options also provide a life cover which ensures financial independence for your dependents, even in your absence. Given the current circumstances, especially after the pandemic, it has become all the more important to gain financial stability with smart investments. 

(By Vivek Jain, Head – Investments, Policybazaar.com)

Disclaimer: This is the author’s personal opinion. Readers are advised to consult their financial planner before making any investment.

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