From PPF to NPS, top 5 investment options for salaried persons

Salaried individuals benefit from the stability of their fixed income, allowing them to effectively budget and save for different financial objectives. Nevertheless, this sense of financial security can sometimes result in a lack of diligence when selecting the most suitable investment tools.

Below are five investment alternatives tailored for salaried individuals, taking into account their risk tolerance and investment timeline.

1. Public Provident Fund

PPF stands out as one of the most secure fixed income investment options, thanks to the sovereign guarantee provided by the government. Not only does investing in PPF make you eligible for tax deductions under Section 80C, but the interest earned and maturity amount are also tax-exempt, making it more advantageous compared to bank fixed deposits and other similar savings schemes.

One major drawback of PPF is its lack of liquidity, as it comes with a 15-year lock-in period. However, premature closures, partial withdrawals, and loans against PPF are permitted under certain conditions. The interest is compounded annually, and the interest rate is revised every financial quarter by the Ministry of Finance. As of now, PPF is offering a return of 7.1% per annum.

Also Read: Fixed Deposits of Top 12 banks offering highest interest rates – Compare rates now

2. Fixed Deposits

Bank fixed deposits provide a secure way to earn interest income and ensure the repayment of the principal amount at the agreed-upon rates, regardless of any fluctuations in the card rate during the deposit period. Deposits made with scheduled banks are also covered by the deposit insurance program offered by DICGC, a subsidiary of RBI. This insurance covers fixed deposits, recurring deposits, and savings and current account deposits up to 5 lakh per bank, per depositor in the event of a bank failure.

Currently, some small finance banks and private sector banks are offering the highest fixed deposit rates up to 9.5%. Therefore, individuals seeking higher interest rates and maximum capital and income protection can distribute their fixed deposits across multiple banks offering higher rates, ensuring that their cumulative deposits in savings, recurring, fixed, and current accounts do not exceed Rs 5 lakh in each bank.

For those looking to save on taxes under Section 80C, tax-saving fixed deposits with a lock-in period of 5 years are also an option. While the deposit amount is eligible for tax deduction, the interest income is taxed according to the depositor’s tax slab. If you are seeking maximum income certainty and capital protection for your short-term goals, fixed deposits are a suitable investment option.

3. Equity Mutual Funds

Equity mutual funds are a preferable option for retail investors seeking long-term wealth creation through equities, especially when compared to fixed income instruments. These funds are ideal for individuals lacking the expertise or time to directly invest in equities.

Investors can begin investing in equity mutual funds with just Rs 5,000 for lump sum investments and Rs 1,000 for additional or subsequent investments. The minimum investment amount for SIPs typically starts at Rs 1,000, while for ELSS, it is Rs 500 per month through SIP. For financial goals with a maturity period of over 5 years, it is advisable to prioritize equity mutual funds over fixed income investments.

Also Read: How understanding NAV can help you make the most of mutual fund investment

4. Voluntary Provident Fund

VPF is essentially an extension of the EPF scheme, enabling EPF subscribers to make voluntary investments exceeding their mandatory EPF contributions, up to 100% of their basic salary and dearness allowance. Just like EPF, contributions to VPF are eligible for tax deductions under Section 80C. The interest rate for VPF is also the same as EPF, subject to annual revisions.

Given that VPF is an extension of EPF, all EPF regulations concerning partial withdrawals, taxation, nomination, and other aspects are applicable to VPF as well. Consider opting for PPF or VPF to achieve your long-term financial objectives if you possess a low risk tolerance or are interested in diversifying your investments across asset classes backed by a sovereign guarantee.

5. National Pension System

The National Pension System (NPS) is a tax-saving scheme backed by the government, ideal for conservative investors aiming to create a retirement fund. This plan enables a tax deduction of up to Rs 2 lakh. Individual subscribers get a tax deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act and an additional deduction of Rs 50,000 under Section 80CCD 1(B).