As per a report by World Bank, in India, the purchasing price parity (PPP) ($1,964) per year is far below the minimum annual income required to pay taxes ($3,700). Eligible taxpayers are only a little more than 2% of the entire population. Among those, most of the tax burden is borne by its salaried individuals as entire agricultural sector, which constitutes 55-60% of the country's entire workforce, falls outside the tax net.
For a salaried individual, the options for tax saving are quite less. The tax saving options for a salaried person usually starts with the 80 C deduction, and at a maximum level, it includes the deduction from home loans and medical insurance. Parallely, for the salaried investor, the stability of capital is of utmost importance to offset the loss from market volatilities, currency fluctuations, and inflation. Hence within tax saving investment as well, the basic objective of a balanced and diversified portfolio is to manage risk, by investing in a mix of growth-oriented and fixed-income instruments.
Let us look at the 5 methods of investment plans to achieve the best results –
- Invest to save tax
A salaried employee can invest in ELSS (tax saving mutual funds), Life Insurance, Tax Saving Fixed Deposits under Section 80 C (up to a ceiling of INR 1.5 lakhs). The most populer investment options come under this. An additional INR 50,000 can be claimed under NPS (National Pension Scheme). There are deductions on Medical Insurance under Section 80 D till INR 25,000 for citizens under 60 years and INR 50,000 for senior citizens (above 60 years). Home Loan Principal component can be claimed under Section 80C, and the interest on home loan component can be claimed under Section 24 and Section 80 EE to a maximum amount of INR 2 lakhs per fiscal year. Additional deduction of INR 50,000 is available for first time home buyers.
- Invest in safe assets
For a salaried individual who has earned his wealth and does not have an alternative source of income, safe investments such as Fixed Deposits, Government bonds, and T-Bills, Public Provident Funds (PPF) and even Employee Provident Fund (EPF) are the best bets. Investment in these options will guarantee the stability of principal and any returns are a reward.
- Take advantage of equity
Equity stocks are one of the fastest and volatile ways to earn high returns. While your risk appetite might not always allow you to invest in risky equity (with high volatility), blue-chip (high performing stocks) are one of the ways to build capital over a period of time. Yet, one would rarely have too much time to research and identify good stocks.
- Invest to earn regular income- There are various instruments that offer periodic interest payouts which can be a good source of regular income. Some of these are:
- Fixed Deposit- allows flexible tenors (ranging from 7 days to 10 years) and payout frequency (quarterly, half-yearly or yearly in the case of non-cumulative FDs).
- Post Office Monthly Income Scheme Account (MIS)- the maturity period of an MIS account is 5 years but the interest is paid out monthly.
- Annuity products offered by insurance companies payout regular income at fixed periods. These products are offered in two forms – deferred annuity and an immediate annuity.
- Senior Citizen Savings Scheme is provided by Indian post offices to investors who are over 60 years old.
- Save adequately to support in an emergency
Emergencies like health issues requiring hospitalization are the biggest reason for depletion of savings for a salaried individual. You should always be prepared for the unexpected onslaught of medical expenses by taking a health insurance policy. You can opt for loans against fixed deposits as well in a few cases. Finally, for the benefit of your family, you should definitely invest in a term plan for an adequate cover using a nominal premium.
Let us look at Money Management Strategies that as an investor which you can use as well:
- Investing in a combination of fixed deposits – There are fixed deposits of various tenors available with multiple lenders. You can make a combination of deposits in a manner that at least one deposit keeps maturing every 2 to 3 months thus taking care of the interest rate changes and also giving you optimum returns. To calculate the returns from your FDs, you can use online FD calculator.
- Reinvesting dividend – It is advisable to claim monthly dividend and invest that in a recurring fixed deposit for a year. This will again increase certain returns, and you can be sure of keeping your principal safe.
- Keep a fixed saving aside as an “Expense” item – Each month once your salary is credited, make a recurring deposit of a fixed amount before you can even touch it. This will inculcate a habit of saving and reduce impulses.
- Invest any monetary gifts – if you happen to receive an unexpected windfall in the form of a tax rebate, dividends or bonus or simply inheritance – when you are unsure of how to deal with it – make a fixed deposit. In case of Bajaj Finance FDs, you can start investing with a minimum investment amount of INR 25,000.
- Budget Carefully – with a single source of income – i.e your job – it will do well in the long term to keep a careful record of monthly expenditure and assess your “necessary” and “luxury” expenses.
The primary objective of any investment planning is to ensure that your investments not only grow but also offer safe and stable returns. It is important that you stay in control of your investments. The biggest advantage with fixed deposit investments is that your principal amount remains safe and you earn assured returns.
High yielding FDs like Bajaj Finance Fixed Deposits are even more secure as they are rated ICRA’s MAAA (stable) and CRISIL’s FAAA/Stable, which means your investments are never at risk. There are various choices in terms of tenor for your fixed deposits. You can invest online (via Experia-your online fixed deposit account) from the ease and comfort of your home and build a formidable portfolio.