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5 Benefits of Buying Pension Plans in India

Benefits and Reasons of Buying Pension Plans in India

Many of us would be focusing on fulfilling today’s financial goals, however ignore retirement planning. One can do retirement planning well ahead of time by investing small amounts and such plan can help to achieve this goal without much struggle. Insurance companies offer insurance cum pension plans which help to grow money with disciplined small savings beyond providing the life risk coverage. There are various advantages of taking a pension plan. In this article we would provide various Benefits of Buying Pension Plans in India.

Also Read: Bharti Axa Life Unnati – All in one Saving Scheme

What is Pension Plan?

People often get confused between pension scheme and pension plan.

Under Pension scheme, one need to invest a lump sum and the insurance company would provide regular monthly pension income. This is post retirement activity.

Pension Plan is where one can make regular savings in a plan which would be useful after retirement. Such plans help to save small amount and save for post-retirement life expenses. This is a pre-retirement activity.

Whatever is being discussed in this article is before retirement.

5 Benefits of Buying Pension Plans in India

Here are some major reasons and benefits of buying pension plans.

#1 – Disciplined Savings

With pension plans, one can have disciplined savings. Investors can invest any amounts depending on their level of income. Such disciplined investments every month can create a large retirement corpus in the long term. Such plan provides financial discipline. A person can invest Rs 500 per month in their 25 years of age compared to a 40 year aged person who might need to invest Rs 1,000 per month to create a similar retirement corpus by retirement age.

#2 – Compounding gains

Pension plans help to get compounding gains if invested for the long term. Person investing for 20 years would get benefitted higher through compounding gains compared to a person who is investing for 5 years or 10 years. Whatever one invests, would earn returns every year. The returns from next year onwards would be on capital + returns earned in 1st year and this list goes on.

#3 – Flexible Options

Pension plans offer various options based on the risk appetite. There are options which are offered for aggressive investors, balanced investors and conservative investors.

Aggressive investors might want to take some risk and want to invest in riskier options like equity.  Such high risk investment options can provide higher returns in the medium to long term.

Balanced investors want to consider moderate risk investment options.  The returns also might be moderate.

Low risk investors do not want to take the risk and want to go with low risk investment options. They also need to compromise on the returns.

Such flexibility would help investors to choose the right pension plan based on their risk appetite.

#4 – Risk Coverage

Pension plans are like insurance-cum-investment schemes. Beyond saving scheme, it provides life risk coverage to the policyholder. In case of unfortunate death of the life insured, sum assured would be paid to the nominee. This way family members’ expenses and financial goals are secured.

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#5 – Zero Tension

Many individuals would have worked hard in buying a house and providing education to the children. However, when they reach retirement age, their fear of not planning for retirement well ahead of time. Considering a pension plan ahead of time with small savings would provide zero tension at a later point of time. Small savings on monthly or yearly basis would go into retirement planning in a disciplined way.

Suresh KP

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