Salaried individuals have different investment requirement than self-employed or other professionals. They have fixed monthly cash inflow to meet their expenses and save for various life goals. While most of the salaried individuals are covered under post-retirement security in the form of employees provident fund or other mandatory retirement schemes, the corpus generated are often inadequate to meet post-retirement schemes.
Here are top 8 investment options that salaried individuals can consider to meet various life goals based on their risk appetite and time horizon:
1. Equity Mutual Fund
Equity mutual funds invest at least 65% of their corpus in equities. Being invested in equities, these funds outperform fixed income instruments and inflation by a wide margin over the long term. These funds are best suited for retail investors who want to invest in stocks but lack the required expertise or time to do so. Equity funds also include a special category of funds called Equity Linked Savings Schemes (ELSS), which qualify for tax deduction under Section 80C. These funds also have the shortest lock-in period of 3 years among all the Section 80C options.
Investment in equity mutual fund can be started with just Rs 5000 for lumpsum and additional investments can be made for just Rs 1000. In case of ELSS, the minimum and subsequent investment amount is Rs 500 per month. If you opt for SIPs instead of lumpsum investment, the minimum instalment is Rs 500 and Rs 1,000 for ELSS and other mutual funds, respectively.
2. Debt Mutual Fund
Debt mutual funds invest in fixed income instruments like corporate debt securities, corporate bonds, government securities, money market instruments, etc. Although debt funds are prone to minimal risk, they are less volatile than equities generating higher returns than fixed deposits. Moreover, unlike fixed deposits, debt funds do not levy premature withdrawal penalty. However, a few debt funds may charge exit load of up to 3% on redeeming your investment before a pre-determined period.
3. Fixed Deposit
Fixed deposits guarantee interest income and principal repayment at booked rates, regardless of any changes in the card rate during the deposit tenure. At present, small finance banks offer highest card rate of up to 9% p.a. (up to 9.6% p.a. for senior citizens) while the highest card rates offered by other private sector banks go up to 8.25% p.a. (8.75% p.a. for senior citizens). The highest card rates offered by public sector banks go up to 7% p.a. (up to 7.5% p.a. for senior citizens). One can also save taxes under Section 80C by investing in tax-saving FDs. However, interest earned is taxable as per tax slab of the depositor. These tax-saving FDs come with a lock-in period of 5 years.
4. Public Provident Fund
PPF is one of the safest funds among all investment options because of the sovereign guarantee from the government. PPF investments also qualify for tax deduction under Section 80C. With a lock-in period of 15 years, PPF is currently offering 8% returns compounded annually. However, the Ministry of Finance reviews the interest rate every financial quarter basis the government bond yields. Additionally, you can extend your investment period after the maturity of 15 years with 5 years block. Maximum limit to invest in PPF is Rs 1.5 lakh in a financial year while the minimum amount is Rs 500.
Lack of liquidity is the PPF’s biggest drawback. Partial withdrawal is permissible only from the 7th FY onwards. Premature closure of the account is allowed after the 5th financial year for medical treatment of serious ailments or life-threatening diseases or for higher education.
5. National Pension System
NPS is a market-linked product for retirement planning. Salaried investors not falling under the ‘Government or Corporate’ model can join NPS under the ‘All Citizens of India’ model. The investments remain locked-in till you reach 60 years of age, which can be extended up to 70 years. Minimum 40% of the accumulated corpus has to be invested to avail annuity while the remaining tax-exempt amount is withdrawn on maturity. You can avail tax deduction of up to Rs 1.5 lakh under Section 80C and an additional deduction of up to Rs 50,000 under Section 80 CCD 1(B).
6. Voluntary Provident Fund
VPF is an extension of the EPF, yielding the same interest rate. Apart from mandatory contribution towards EPF, you can voluntarily choose to increase your contribution to up to 100% of your basic salary and dearness allowance in VPF. The interest rate is reviewed by the government every year and the investment amount qualifies for tax deduction under Section 80C. The interest earned is tax-exempt provided the employee continues to be in service for 5 years or more.
7. National Savings Certificate
National Savings Certificate is a fixed income investment scheme with a lock-in period of 5 years offering an interest rate of 8% compounded annually. Just like the PPF, the NSC interest rates are reviewed every quarter. With minimum deposit of Rs 100 and no maximum deposit limit, you can claim tax deduction of up to Rs 1.5 lakh under Section 80C.
8. Unit Linked Insurance Plan
ULIP combines life insurance with market-linked investment. A part of the premium goes towards insuring your life while the other part is invested in stocks, bonds, market instruments, etc. They offer both death and maturity benefits. ULIPs come with a lock-in period of 5 years and qualify for tax deduction under Section 80C. Insurers also offer various fund options to suit varying risk appetites. One can also switch between these fund options to cater to the changing risk appetite or market conditions.