From NPS to PPF, best investment options for salaried persons in India

Individuals with a salary have distinct investment needs compared to self-employed individuals or other professionals. They receive a consistent monthly income that allows them to cover their expenses and save for different life objectives. Although many salaried employees benefit from post-retirement security through programs such as the employees’ provident fund or other compulsory retirement plans, the accumulated funds are frequently insufficient to fulfill their post-retirement financial requirements.

Below are eight prime investment options that salaried individuals may explore to achieve their various life goals, taking into account their risk tolerance and investment timeline.

1. Public Provident Fund

The Public Provident Fund (PPF) is regarded as one of the most secure investment options available, primarily due to the sovereign guarantee provided by the government. PPF investments are eligible for tax deductions u/s 80C. With a mandatory lock-in period of 15 years, PPF currently offers an annual compounded return of 7.1%. It is important to note that the Ministry of Finance reassesses the interest rate every financial quarter based on government bond yields. Furthermore, investors have the option to extend their investment period for an additional block of 5 years after the initial 15-year maturity. The maximum investment limit in PPF is set at Rs 1.5 lakh per financial year, while the minimum investment is Rs 500.

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2. National Pension System

The National Pension System (NPS) serves as a market-linked retirement planning product. Individuals who are salaried and do not belong to the ‘Government or Corporate’ model can participate in NPS through the ‘All Citizens of India’ model. The funds invested in NPS remain locked until the investor reaches the age of 60, with the possibility of extending this period up to 70 years. To access an annuity, a minimum of 40% of the accumulated corpus must be invested, while the remaining amount can be withdrawn tax-exempt upon maturity. Additionally, investors can claim a tax deduction of up to Rs 1.5 lakh under Section 80C, along with an extra deduction of up to Rs 50,000 under Section 80 CCD 1(B).

3. Equity Mutual Fund

Equity mutual funds allocate a minimum of 65% of their total assets to equities. Due to their investment in equities, these funds significantly surpass fixed income instruments and inflation over the long term. They are particularly advantageous for retail investors who wish to invest in stocks but may not possess the necessary expertise or time. Additionally, equity funds encompass a specific category known as Equity Linked Savings Schemes (ELSS), which are eligible for tax deductions under Section 80C. Among all options available under Section 80C, these funds feature the shortest lock-in period of three years.

An investment in equity mutual funds can commence with a minimum of Rs 5,000 for a lump sum, while subsequent investments can be made starting at Rs 1,000. For ELSS, the initial and subsequent investment amounts are set at Rs 500 per month. If one chooses to invest through Systematic Investment Plans (SIPs) rather than a lump sum, the minimum installment is Rs 500 for ELSS and Rs 1,000 for other mutual funds.

4. Debt Mutual Fund

Debt mutual funds allocate their resources to fixed income assets such as corporate debt securities, corporate bonds, government securities, and money market instruments. While these funds carry a relatively low level of risk, they exhibit less volatility compared to equities and typically yield higher returns than fixed deposits. Additionally, debt funds do not impose penalties for early withdrawals, unlike fixed deposits. It is important to note, however, that certain debt funds may apply an exit load of up to 3% if an investment is redeemed prior to a specified duration.

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5. Voluntary Provident Fund

The Voluntary Provident Fund (VPF) serves as an extension of the Employees’ Provident Fund (EPF) and offers the same interest rate. In addition to the compulsory contributions made towards the EPF, individuals have the option to voluntarily enhance their contributions to the VPF, allowing for an increase of up to 100% of their basic salary and dearness allowance. The government conducts an annual review of the interest rate, and the contributions made are eligible for tax deductions under Section 80C. Furthermore, the interest accrued is exempt from taxation, provided the employee remains in service for a minimum of five years.

6. Fixed Deposit

Fixed deposits provide a guarantee of both interest income and the return of principal at the agreed-upon rates, irrespective of fluctuations in the card rate throughout the duration of the deposit. Currently, small finance banks are offering the highest card rates, reaching up to 9% per annum (up to 9.5% per

annum for senior citizens), while other private sector banks offer maximum card rates of up to 8% per annum (8.5% per annum for senior citizens). Public sector banks present the highest card rates at 7.3% per annum (up to 7.8% per annum for senior citizens). Additionally, individuals can benefit from tax savings under Section 80C by investing in tax-saving fixed deposits. It is important to note that the interest earned on these deposits is subject to taxation according to the depositor’s applicable tax bracket, and these tax-saving fixed deposits are associated with a lock-in period of five years.

7. Unit Linked Insurance Plan

A Unit Linked Insurance Plan (ULIP) integrates life insurance with investment opportunities linked to market performance. A portion of the premium is allocated for life coverage, while the remaining amount is invested in various financial instruments such as stocks, bonds, and other market-related assets. ULIPs provide both death benefits and maturity benefits. They are subject to a mandatory lock-in period of five years and are eligible for tax deductions under Section 80C. Insurance providers also present a range of fund options to accommodate different levels of risk tolerance. Additionally, policyholders have the flexibility to switch between these fund options in response to changes in their risk preferences or market dynamics.

8. National Savings Certificate

The National Savings Certificate (NSC) is a fixed-income investment program that features a lock-in duration of five years and provides an annual interest rate of 7.7% compounded. Similar to the Public Provident Fund, the interest rates for the NSC are assessed on a quarterly basis. Investors can start with a minimum deposit of Rs 1000 (and in multiples of Rs 100), with no upper limit on the amount deposited, and are eligible for a tax deduction of up to Rs 1.5 lakh u/s 80C.

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