#1. Public Provident Fund (PPF)
Apart from your regular pension contribution, investment in a PPF account can save you a lot of tax. That is because investment in PPF can be claimed as a deduction under section 80C on the IT Act.
Further, the accumulated principal and interest amount are also exempt from tax at the time of withdrawal.
- Higher interest rate than bank fixed deposit
- Returns are absolutely tax-free
- Approx annual return = 7.1%
- Time is taken to double investment = 10.14 years
- The PPF account cannot be closed before 15 years.
- Partial withdrawal is possible only after the completion of 6 years.
#2. National Pension System (NPS)
NPS is a pension scheme that is portable across jobs and locations. You do not have to change your fund while changing your job or city.
The additional benefit is that you get returns from equity and debt investments as compared to PPF where you invest only in the interest-earning instruments.
All your contributions up to Rs. 1.5 Lacs into Tier I capital are exempted under section 80C. Apart from that, you can claim any additional self contribution up to Rs. 50,000 of tax benefits under section 80CCD(1B).
So here you can save Rs. 2 Lacs of tax.
- Approx return per year = 8% to 10%
- Years took to double the investment = 7.2 to 9 years
- You can’t withdraw fully before 60 years of age.
- Only 25% early withdrawal is permitted for certain purposes like buying a house, medical treatment and children marriage or higher education.
- Thereafter, you can withdraw only 60% which is tax-free and the rest 40% of the corpus is kept to receive a regular pension.
#3. Equity Linked Savings Scheme (ELSS)
You get a higher return of 15% to 18% while investing in ELSS. Investment in ELSS funds have a lesser lock-in period of 3 years and any earnings over and above Rs. 1 Lac are taxable.
- Approx return per year = 15% to 18%
- Years took to double the investment = 4 to 4.8 years
- Treated as LTCG and earnings over Rs. 1 Lakh are taxed at 10%.
Tax Savings Fixed Deposit
If you want to have a safe investment option without worrying about market fluctuations then pick tax-saving fixed deposit of any bank or post office.
The interest rates vary from bank to bank and are in the range of 5% to 7.25%.
- Approx return per year = 5% to 7.25%
- Years took to double the investment = 9.9 to 14.4 years
- Interest earned from FD is taxable.
- There is a lock-in period of 5 years.
Start-up Guide for Mutual Funds
A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund’s assets and attempt to produce capital gains or income for the fund’s investors. A mutual fund’s portfolio is structured and maintained to match the investment objectives stated in its prospectus.
Mutual funds give small or individual investors access to professionally managed portfolios of equities, bonds, and other securities. Each shareholder, therefore, participates proportionally in the gains or losses of the fund. Mutual funds invest in a vast number of securities, and performance is usually tracked as the change in the total market cap of the fund—derived by the aggregating performance of the underlying investments.
- A mutual fund is a type of investment vehicle consisting of a portfolio of stocks, bonds, or other securities.
- Mutual funds give small or individual investors access to diversified, professionally managed portfolios at a low price.
- Mutual funds are divided into several kinds of categories, representing the kinds of securities they invest in, their investment objectives, and the type of returns they seek.
- Mutual funds charge annual fees (called expense ratios) and, in some cases, commissions, which can affect their overall returns.
- The overwhelming majority of money in employer-sponsored retirement plans goes into mutual funds.