Are you worried about tough times like these taking away your wealth? Do you want to stay away from all sorts of financial entanglements that arise due to the unprecedented developments that are not under your control? In this article, you will learn how mutual funds and insurance policies can help you avoid financial complications.
The crisis caused by the COVID-19 pandemic has left many businesses gasping, and they have had to resort to cost-cutting measures such as pay cuts and layoffs. This has left many individuals struggling to cope with their commitments as their income has been lost or reduced a bit.
If you had an emergency corpus to rely on, you wouldn’t have to undergo this crisis. An emergency fund is your savings invested in suitable schemes. This fund must be utilised when your primary source of income is affected. This should be seen as the last option to fall back on at times of crisis.
Ideally, your emergency fund should be at least six times your monthly income. With emergency savings, you must be able to lead your regular lifestyle. Apart from covering your liabilities, you should also provide for your family. By the time your emergency corpus runs out, you have to find a source of income, which is finding employment.
As emergency corpus should be readily accessible, you cannot rely on traditional investment options such as Public Provident Fund (PPF) or Employees’ Provident Fund (EPF) as the process of withdrawal is tedious. A regular savings bank account will suffice if you are happy with a mere 2%-4% of interest a year.
This is where debt funds, such as liquid funds and overnight funds score better. These funds not only provide liquidity but also much-higher returns than a regular savings bank account and fixed deposit. There are liquid funds that allow for instant withdrawal, which is what is needed in the case of emergency funds.
Once you have accumulated a sufficient amount of money in your emergency funds, you can start investing in other mutual funds such as index funds. These funds are known to provide overwhelming returns over five years or more as they invest in high-quality stocks across all sectors.
However, it would be best if you refrained from touching this fund for at least five to mitigate market volatility and other related risks. If you are looking for the tax-saving option, then you may consider investing in an equity-linked savings scheme (ELSS). Tax-saving funds come with a lock-in period of three years, making them an excellent choice for short-term planning.
After the lock-in period ends, you may utilise it as an additional sum towards your emergency funds. This way, you hit two birds in one stone, that is sorting out your tax-savings under Section 80C and accumulating an emergency corpus in the long run. Hence, Mutual Funds Sahin Hain!
Now, if you want to protect your investments from eroding due to adverse developments, then you have to avail the right insurance policies. For instance, getting healthcare is very expensive these days. The cost of healthcare in India is rising more than the rate of inflation. This makes it necessary for you to avail health insurance that offers sufficient coverage.
Health insurance is critical as the modern world is capable of springing an unpleasant surprise at any time. If you end up on a hospital bed, then your savings would be eroded. Therefore, it is essential to avail health insurance with sufficient coverage that provides cover for self and family members.
Furthermore, you get tax benefits under Section 80D on premiums paid towards health insurance. You can avail coverage for self, spouse, children, and parents to claim a tax rebate on the premiums paid. If your parents are aged above 60, then you get a higher quantum of deductions. The following table shows the extent of deductions available:
|Scenario||Premium paid (Rs)||Deductions under 80D (Rs)|
|For self, family, children||Parents|
|Individual and parents below 60 years||25,000||25,000||50,000|
|Individual and family below 60 years but parents above 60 years||25,000||50,000||75,000|
|Both individual, family and parents above 60 years||50,000||50,000||1,00,000|
|Members of HUF||25,000||25,000||25,000|
If you are worried about the financial state of your family being affected when you pass away due to an untoward incident, then you can avail term insurance. This type of life insurance would pay the sum assured to the nominee/beneficiary of the policy if you are no more. The premiums of term insurance are nominal, and you get a massive amount of cover in exchange.
Term insurance helps you lead a stress-free life as the lives of your family members are secured. You can provide for your family members even after you are no more as you leave behind a legacy. The sum assured of term insurance policies would be more than sufficient to take care of your family’s living expenses and children’s education. What’s more? You can claim tax deductions on the premiums paid towards availing a term insurance policy under Section 80C provisions.
To conclude, accumulating an emergency corpus with the help of debt mutual funds and building a future with other mutual funds is essential. Having the right insurance policies covering you is critical, given the uncertainty that looms large over our lives in the modern world. With the help of mutual funds and insurance policies, you can keep away from financial concerns and deal with taxes at the same time.
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Engineer by qualification, financial writer by choice. I am always open to learning new things.