Independence Day Special: Achieve Financial Independence with Sound Investment Planning

Although financial independence is often thought of as having enough money, it can actually mean different things to different people. Some may view financial independence as saving enough to live luxuriously in the moment, while others may see it in terms of comfortably achieving life goals. Although your financial characteristics and life goals may differ, the fact remains that achieving these goals requires sound investment and sound planning. Do not forget that there are external factors that greatly affect your financial needs. Medical costs, education costs and rising inflation are among the factors that require you to plan ahead for your financial independence.

Contrary to popular belief, saving alone is not the path to a substantial corpus. Financial planning means keeping up with inflation and helping your money grow through smart investments. For example, most people are not smart enough when it comes to planning for their retirement, especially during their working years. However, even if you’re 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 comfortably pass the milestones, now is the right time to invest. Here’s what you should know about achieving financial freedom:

Investment navigation for the risk-averse

As we have witnessed the market trends during the pandemic, the key takeaway is not to wait for a complete economic downturn before investing. The markets may never be as favorable as you would like and as a result it may be too late! However, if the idea of ​​investing in a volatile market isn’t your cup of tea, there are plenty of options for risk-averse investors. For example, a guaranteed return plan is one such strategy to navigate through troubled waters. These plans have a guaranteed rate of return that is locked in at the time of plan purchase.

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Unlike traditional savings options like FDs, the returns on these investments are fully tax-free and the investments are also eligible for tax deductions under Section 10 (10D) through the life insurance component. The new age plans in this category have short-term fixation, easy liquidity and offer returns of up to 6.14%, which is a significant long-term gain compared to other traditional savings options.

Another low-risk option, particularly suitable for retirement planning, is an annuity plan. If you have a ready corpus, you can choose an immediate or deferred annuity plan and start receiving fixed income or lump sum as per your preference. In times of low interest rates, annuity plans eliminate reinvestment risk and guarantee fixed payouts at regular intervals.

Investments with risk appetite

The proverb – no risk, no gain – exists for a reason. Those who are willing to bet on the markets regardless of fluctuations can also enjoy its benefits. One such option that investors can consider is ULIP or Unit Linked Insurance Plan. A dual benefit instrument, ULIP comes with the option of switching funds between equity and debt as well as a life insurance element. Profits under this plan are tax-free and can reach 12-15% if the investor is willing to go for the long term and knows the market conditions. In terms of tax benefits, the plan is eligible for tax deduction under section 80C up to a limit of Rs 1.5 lakh per annum premium paid out of taxable salary. Further, the investment is tax-free for an annual premium 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 assurance in commensurate measure. Under these plans, 50-60% of the amount goes to guaranteed income plans and the rest is invested in equity. These plans offer 100% security of your principal, so you can have both financial security and the opportunity to build wealth. Don’t forget that they also have a tax component due to the life insurance element and tax-free earnings.

Keep browsing your portfolio

Once you’ve chosen your preferred investment vehicle(s), it’s time to periodically review your portfolio to see if the investments are meeting your changing needs. For example, if you’re investing in your child’s education, it’s a good idea to rebalance your portfolio annually in line with rising education inflation. Simply put, rebalancing means profiting from high-performing assets and finding new options that can work over the long term. It also means changing your preferences according to market conditions and being careful not to lose profits.

In addition to high tax-free returns and maturity, these options also provide lifetime coverage that ensures financial independence for your dependents even in your absence. Given the current circumstances, especially after the pandemic, it becomes even more important to achieve financial stability through smart investments.

(By Vivek Jain, Head of Investments,

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

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