One of the most significant aspects of the financial world is that ‘it’s a lazy person’s heaven.’ One needs to invest money and sit back and relax to see that money grow like a time-lapse video. However, confusing laziness with procrastination is wrong.
In the financial world, people who start early win the race. If you keep on thinking about exploring options tomorrow or next week or after your salary hike, chances are you will lose money.
There is a famous adage in the market which states, ‘the more you delay, the more you pay.’ However, to create wealth, it is crucial to invest because when you invest early, you can completely utilize the power of compounding.
The Power of Compounding: A Bridge Between Your Goals and Reality
To simply put, power of compounding means earning interest on interest. When you invest your money in an instrument, you receive interest on the amount invested every year. The longer you stay invested, the higher the interest you gain on your investment.
To understand it better, here is a small example. Ram is a salaried employee, who makes a yearly investment of Rs. 10,000 in a market-linked instrument for 30 years and generates returns at an interest rate of 8 percent.
So, by the end of the 30th year, the amount invested by Ram would be Rs. 3 lakhs. However, the amount he will receive after compounding at 8 percent would be around Rs. 12 lakhs. This is the power of compounding.
If you are still worrying about how to save tax on your investments, you should rethink your priorities. Firstly, you must prioritize on the compound interest offered by the instrument and then think about how to save tax with the help of that investment.
Currently, the best instrument that offers both the power of compounding and tax benefit under a single umbrella is a ULIP plan.
In a ULIP plan, you get not only the option of wealth creation but also the benefit of life cover. In this article, we have noted down four ULIP plans that can help you ride the wave of compounding. Read on to know more.
The Fast Track Super Plan offered by Max Life Insurance is a ULIP plan that aims to provide insurance options with a simplistic and safe approach to invest in the market-linked instruments. The product helps in wealth creation while providing benefits, including:
- Six fund options for investment
- Comprehensive life insurance coverage
- Option to choose policy term and premium payment frequency
- Systematic Fund Transfer (SFT) and Dynamic Fund Allocation mechanism to safeguard your investments against the volatility of the market
- Flexibility to make partial withdrawals
- In case of an unfortunate demise of the policyholder, the nominee is provided death benefit which will be the highest of the sum assured, fund value or 105 percent of the premiums paid
Tax benefits on premiums paid under section 10(10D) and 80C (Income Tax Act 1961)
HDFC Life Click2 Invest is a ULIP plan that offers a combined benefit of life protection with an option of wealth creation. Being a ULIP plan offered by insurance giant HDFC, this plan provides eight fund options to the investors. It also offers:
- The flexibility of choosing the policy tenure which ranges from 5-20 years
- In case of an unfortunate demise of the insured, the beneficiary or nominee is provided with the sum assured amount
- The policy offers three premium payment options to the insured, i.e., single, regular, and limited pay
- In case the policyholder survives the entire tenure, then s/he is provided maturity benefit as the fund value
- The policy provides tax deductions on premiums paid under section 10(10D) and 80C
SBI wealth assure is a single premium unit linked insurance plan that offers guaranteed returns on investments based on the performance of the market. Under this, the insured only needs to make payment once to avail life cover throughout the policy tenure. Some other benefits of SBI Life wealth assure include:
- Once the policy matures, the insured is provided the fund value amount as maturity benefit
- The plan offers 2 ULIP fund options to the policyholders
- In case of an unfortunate demise of the insured, the nominee is provided a death benefit as sum assured
- The plan offers tax deductions, courtesy, Section 80C and 10(10D)
- The plan provides add-on riders in the form of accidental death
Bajaj Allianz future gain is a ULIP plan that offers the option of maximum premium allocation to the policyholders to ensure that they can maximize their wealth. This non-participating plan allows the policyholder to invest in market-linked products like equity, balanced, and debt funds. Its benefits include:
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- Two portfolio strategies for investment
- Five additional riders
- Options like partial withdrawal, switching and premium re-direction
- In case of an unfortunate demise of the policyholder, the nominee receives the death benefit in the form of sum assured
- Tax benefits under section 80C and 10(10D)
Be Lazy but Don’t Procrastinate
So now that you know why investors call the power of compounding “Magic”, you must begin investing early and see your money grow. You can invest in one of the ULIP plans stated above to create wealth and leave your fears on how to save tax aside.
But remember, once you start investing, review your investments regularly and ensure that they are leading you towards your goals.
