Saving is very important for Indians. The future is uncertain. A financial crisis can arise at any time. In such a situation, by saving money, you can create a safety net for future expenses as well as financial needs. So it is advisable to invest a part of the income. When investing savings we look at returns. But two important factors inflation and taxes are ignored. This can reduce your returns.
Suppose you are in 30% tax slab and earning 7% annual return on investment. Accordingly, the net return after tax [7- 2.10 (7×30%)] is only 4.90%. This is around the current inflation rate. In such a situation, it is important to choose where to invest and review it in time. It is better to start planning for retirement as soon as you receive your first income.
1. SIP: Balanced returns, low risk
Mutual fund SIP is a better option to combat inflation. SIP is invested at every market rate. This balances returns and reduces risk. From tax point of view, you can choose debt or equity. Equity has less tax impact as compared to debt.
Similarly, there are many investment options in mutual funds – debt, equity, hybrid, infrastructure etc. Risk is less in debt and more in equity. Returns are also generally higher than inflation. Some SIPs and Mutual Funds are exempted under 80C from Rs. Tax exemption up to 1.50 lakhs is also available.
2. EPF: Super Tax Saving Scheme
EPF is a good investment option for working class. Employees can invest in it beyond the limit of 12% if they wish. It gives a return of 8.25%, double the current rate of inflation. The interest earned on employee's share of contribution is Rs. 2.50 lakhs is tax free.
The interest earned on the employer's portion of contribution is completely tax free. If the basic monthly salary at the age of 25 years is 40 thousand rupees, then the investment in 25 years will be 72 lakh rupees and the maturity amount will be 2.89 crore rupees.
3. PPF: Rs. 1.5 lakh. Tax exemption up to
This is a good option for both salaried and non-salaried investors. Account can be opened through post office or bank. In this you can invest a minimum of 500 rupees and a maximum of 1.50 lakh rupees. Annually on the invested amount of Rs. Tax exemption up to 1.50 lakhs is available.
Currently 7.10% interest is tax free. No withdrawal option for first 5 years. A monthly investment of 5 thousand rupees for 15 years will be 16.27 lakh rupees. In which Rs. 9 lakhs investment and Rs. 7.27 lakhs includes interest income. It is better for those who want to avoid market risk.
4. Gold: 8% return per annum for 55 years
Between January 1971 and March 2024, investors have earned an average annual return of 8% on gold investments. Investing in gold also fulfills the immediate financial needs of investors. Apart from physical gold, there are many investment options available in the market including sovereign gold bonds and gold ETFs (exchange traded funds).
5. Bank FD: Safe investment, but low returns
of investment This is the most popular medium. Its compensation is according to the interest rates of the banks. It is relatively low, so not effective in fighting inflation. Interest earned on FD is also taxable. Hence the yield (net return) remains the lowest. But it is the most liquid option due to the option to withdraw funds when needed.
Image Credit: (Divya-Bhaskar): Images/graphics belong to (Divya-Bhaskar).
