How To Choose The Best Financial Gifts

How To Choose The Best Financial Gifts

With the potential to change the life of the recipient, financial gifts should be chosen with utmost care. Fixed deposits (FDs), mutual funds, life insurance, health insurance, unit-linked insurance plans (ULIPs), and child plans are some of the prudent financial gifts that will help your loved ones meet critical financial goals.

Be it FDs or child plans or life insurance, the gift should create value for the recipient. More importantly, it should be chosen based on the investment horizon and its ability to generate inflation-adjusted returns. Any gift loses its real worth if eroded by taxation and inflation. Read on to know the various financial gifts you can offer your loved ones and the factors determining their choice.

1. FDs

Being fixed return instruments keeping market volatility at bay, FDs have been one of the most prudent investment avenues for most Indians. They are ideal for building a corpus for short-term goals such as going on a vacation or making a down payment for a home or a car. Opening an FD account is extremely easy. You can walk into any bank, fill up the form and if you hold an account with the bank, the FD is opened within minutes. You can also open an FD from the comforts of your home with net banking.

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Today, apart from banks, even non-banking financial companies (NBFCs) offer Fixed Deposits. FD interest rates offered by NBFCs are generally higher than the market average. Using an online FD calculator, you can easily gauge the maturity amount at the end of the tenor. These calculators are easy to use and also reveal the interest earned on the principal amount. FDs are one of the safest financial instruments, latent to market fluctuations thereby preventing a dip in the corpus in case the markets are volatile.

2. Life insurance

Helping your loved ones stay financially independent in case of an unfortunate event, life insurance is one of the first financial products that every earner should buy. Life insurance, especially term insurance offers substantial coverage at an affordable premium. If you are the sole breadwinner of your family, this financial gift would go a long way in ensuring that your loved ones maintain their lifestyle and meet liabilities incurred in the form of loans, if any. A 30-year-old non-smoking male can opt for a term insurance of Rs.1 crore for a 30-year period by paying a nominal annual premium of a little under Rs.10,000.

Life insurance, including term insurance, can be availed online. Premiums availed on life insurance taken online tend to be lower as the insurer saves on administrative and distribution costs, the benefits of which are passed on to the consumer.

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3. Unit-linked insurance plans (ULIPs)

Blending insurance and investment into a single product, unit-linked insurance plans (ULIPs) help you build a sizeable corpus for essential life goals of your loved ones such as your child’s higher education, marriage, etc. ULIPs invest in a mix of funds of varying degrees of risk such as equities, balanced and debt. While equities help to generate inflation-adjusted returns, balanced and debt funds prevent erosion of corpus in case of a market swing.

ULIPs also offer partial withdrawal facility after the 5-year lock-in-period. This facility helps you meet the requirement of funds for addressing short-term needs of your loved ones. Also, ULIPs offer a switching facility wherein you can switch funds, from equities to debt, while nearing goals.

4. Child plan

One of the most prudent financial gifts, a child plan ensures the financial protection of your child in your absence. Child plans help you accumulate wealth for varied needs of your child at different life stages. The parent is the insured while the child is the nominee. In case of an unfortunate event during the policy term, the plan pays out the sum assured. However, that’s not all. These plans continue to invest on behalf of the insured parent till policy maturity, waiving off all the future premiums. Thus, a child plan is one of the best financial gifts you, as a parent, can give to your most prized asset. A child plan gives you peace of mind by ensuring that the needs of your child are taken care of in your absence.

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5. Health insurance

An effective risk management tool to cut out-of-pocket healthcare expenses, a health insurance policy ensures that your loved ones are not deprived of the best care because of lack of funds. Health insurance plans, especially family floater plans cover all members of the family. Rising healthcare costs coupled with medical inflation have made health insurance an absolute must. Experts advise having a health cover of a minimum of Rs.5 lakh if you are living in a metro city. There are various aggregator sites where you can compare health insurance plans from different insurers.

The value of a financial gift goes beyond monetary benefits. The above-mentioned gifts help your loved ones remain cushioned against uncertainties, stay financially independent and achieve crucial life goals.