Best Investment Plans for Salaried Individuals in 20s

Individuals in their 20s are mostly commencing their careers with first jobs. Being young and inexperienced with not many responsibilities, financial planning does not feature on their priority list.

However, investing at an early age provides the additional benefit of compounding growth. This means that investors are able to accumulate a higher corpus (amount) because they earn returns on their profits.

Financial planning is no easy task and considering factors like total earnings, monthly expenses, debt obligations, and the amount available for savings is important. Listing down various financial goals, such as marriage, buying a home, children education, retirement etc. will help investors understand the amount they would need to meet these requirements and plan accordingly.

Before discussing the best investment plan for young investors, it is vital to differentiate between savings and investments. Savings are done when a certain amount is put aside in avenues like a bank account. On the other hand, investments are financial products that provide returns on the initial capital invested over a period of time.

Investing is important for salaried individuals in their 20s to meet emergency fund requirements and to save tax. Having an emergency fund ensures individuals do not have to meet immediate cash requirements by plunging into their long-term investments. In addition, Section 80 of the Income Tax Act provides tax benefits for investments made in instruments, such as provident funds, mutual funds, insurance policy, and many other financial products.

Here are some of the best plans for salaried individuals in 20s

Unit-Linked Insurance Plans (ULIPs)
This is a type of insurance plan that provides life coverage along with an investment option. Policyholders can choose from different financial instruments, such as bonds, equities, money market instruments for investing some portion of their investments. ULIP is an integrated plan offering growth and protection to the investors. In addition, this plan offers investors with the flexibility of managing their investments as per their personal requirements and choices.

There is a certain level of risk involved in ULIPs because returns are based on the market performance. The investment risk is borne by the policyholders and investors must choose a plan that suits their risk profile. This is an appropriate investment plan for individuals with a medium to long-term investment horizon. Most ULIPs allow investors to monitor the performance of the portfolio and switch between funds to match the various risk-return profiles of investors.

Public Provident Fund (PPF)
PPF is a tax-free savings instrument offered to investors since 1968. It is an EEE (Exempt-Exempt-Exempt) scheme, which makes it one of the best investment plans for investors. The deposits made to the PPF account are tax-free. In addition, the interest and maturity corpus are tax-free. The current interest rate on PPF is 8.1%, which is revised each quarter by the Government.

The tenure of the PPF is 15 years and the investors have to deposit a minimum of INR 500 per year. The account can be further continued for 5 years at each renewal with or without making additional deposits. Premature withdrawal is available after 7 years of opening an account based on certain terms and conditions.

Fixed Deposits (FDs)
One of the oldest forms of investments, FDs provide investors the opportunity to earn higher returns (as compared to bank savings accounts) on their capital. These instruments allow individuals to make a one-time investment for a certain period of time to earn returns. Investors can choose the tenure and amount as per their convenience making FDs very versatile.

The returns on the investments are fixed, which means there is no risk involved in this kind of investment. The rates differ from one institution to another and also depend on the tenure of the FD. Premature withdrawal is not encouraged but under extreme circumstances, investors may withdraw the money by paying some penalty. Loans are also available against FDs to meet emergency fund requirements.

National Savings Certificates (NSC)
NSC offers an attractive interest rate (currently at 8.1%) as well as tax benefits under Section 80C of the Income Tax Act for the investors. Individuals can purchase these certificates in predetermined denominations and earn returns at the end of the holding period. The interest is reinvested, which provides higher returns to the investors. These are risk-free and issued by the post office.

Starting early to enjoy the benefits of compounding is advisable. As individuals can choose from different instruments, researching the pros and cons before investing will be prudent. Moreover, understanding their personal needs before making their decisions is very crucial.

About HDFC Life
HDFC Life, one of India’s leading private life insurance companies promoted by HDFC Ltd. & Standard Life Ltd., offers a range of individual and group insurance solutions. HDFC Life’s product portfolio comprises solutions, which meet various customer needs such as Protection, Pension, Savings, Investment and Health.