The world is emerging from an unprecedented year that has in many ways altered our lives, changed our perspectives, and taught us several things. Further, it has underscored the relevance of maintaining good health and planning for unforeseen events. While events like the pandemic can certainly not be predicted, what you can do to mitigate their impact on your life is to plan your finances well. Keeping the imperatives of the new normal in mind, here are our top five financial planning options for 2021 and beyond.
The Big Five
- Health Insurance: Medical emergencies and critical illnesses can become a drain on your finances and impact your ability to achieve your financial goals. They can concurrently increase your expenses and decrease your income by impacting your ability to earn. This makes buying a health insurance policy an integral part of your investment plan. The policy can help you meet medical expenses, support your family in case of reduced or loss of income, and even potentially ensure that you continue with your savings and investment journey as planned.
- Term Plan and Personal Accident: Term Plan keeps your family financially secured even in your absence with a concrete safety net to meet their expenses and sustain their current lifestyle. Moreover, a term plan being an eligible deduction u/s 80C, helps you save taxes. Term plan provides coverage for death due to any cause, maybe natural or accident, personal accident insurance coverage provides coverage against death by accident or permanent disability arising from accident. Ideally investing in a good term plan should be your foremost priority to financially secure the future of your family in your absence. However, if you want complete protection, then you can buy a personal accident cover additionally. This is primarily because it provides an additional security against disability caused by accidents.
- Home / Property Insurance: Just like your life and your health needs to be protected, your house too requires protection from natural and man-made perils. We have seen once, too often the significant impact of natural calamities on our dwellings. A home insurance policy protects your house from any damage or loss that you may incur and ensures that it does not have a big impact on you financially. Further, it can also protect you from third-party liability and often covers the important contents of your house.
- Mutual Funds: This is a professionally managed investment vehicle that invests across asset classes like equity, debt, and gold and is available for multiple investment periods ranging from 1 month to more than 10 years. Further, you have the option to choose your investments from a range of schemes which offer varying levels of returns and come with different risk profiles. Some allocation to mutual funds can help you achieve your financial goals.
- PPF: The Public Provident Fund (PPF) is one of the best investments that you can consider for inclusion in your portfolio. It is a relatively safer investment which offers guaranteed returns. However, it is important to note that the rate of return on PPF investments is determined by the government and is subject to change. Historically, the rate of interest offered on a PPF investment has generally been higher than the rate of return on a fixed deposit. Additionally, not only is the contribution to PPF tax deduction under Section 80C of the Income Tax Act, but tax exemptions are also applicable at the time of redemption. However, this is a long-term investment option as it comes with a lock-in period of 15 years (partial withdrawals after five years are permitted for specified requirements).
While these are the most compelling investment options, the allocations to these investments will depend upon your risk profile, investment time horizon, and return requirements. However, in order to build a stronger and more resilient future, you must start your investment planning NOW!
