Savings have a great significance for Indians. The future is uncertain. Financial emergencies can strike at any time. In such a situation, by saving money, you can create a safety net for future expenses as well as financial needs. Therefore, it is advisable to invest a part of the income. We look at returns while investing savings. But we ignore two important factors inflation and tax. These can reduce your returns. Suppose you are in the 30% tax slab and are getting 7% annual return on investment. According to this, 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 select where to invest and review it on time. It would be better to start planning for retirement with the first income. 1. SIP: Balanced return, low risk SIP of mutual funds is a better option to counter inflation. Investment is made in SIP at every rate of the market. This balances the return and reduces the risk. From the tax point of view, you can choose debt or equity. Equity is taxed less than debt. Similarly, there are many options for investing in mutual funds – debt, equity, hybrid, infrastructure etc. The risk is less in debt and more in equity. The returns are also usually higher than inflation. Some SIPs and mutual funds also provide tax exemption of up to Rs 1.50 lakh annually under 80C. 2. EPF: Super Tax Saving Scheme EPF is a better investment option for the salaried class. If the employee wants, he can invest more than the limit of 12% in it. It gives a return of 8.25%, which is twice the current rate of inflation. The interest received on the employee’s contribution is tax-free up to a limit of Rs 2.50 lakh annually. The interest received on the employer’s contribution is completely tax-free. If the basic monthly salary is Rs 40,000 at the age of 25, then the investment will be Rs 72 lakh in 25 years and the maturity amount will be Rs 2.89 crore. 3. PPF: Tax exemption up to Rs 1.5 lakh This is a better option for both salaried and non-salaried investors. Account can be opened through post office or bank. You can invest a minimum of Rs 500 and a maximum of Rs 1.50 lakh in this. Tax exemption of up to Rs 1.50 lakh per year is available on the invested amount. Currently 7.10% interest is tax-free. There is no withdrawal option for the first 5 years. A monthly investment of Rs 5,000 for 15 years will amount to Rs 16.27 lakh. This includes an investment of Rs 9 lakh and income from interest of Rs 7.27 lakh. This is better for those who want to stay away from market risk. 4. Gold: 8% annual return for 55 years Investors have received an average return of 8% annually on investment in gold between January 1971 and March 2024. Investment in gold also fulfills the immediate money needs of investors. Apart from physical gold, many investment options are available in the market including Sovereign Gold Bond and Gold ETF (Exchange Traded Fund). 5. Bank FD: Safe investment, but low net return This is the most popular medium of investment. Its return is according to the interest rates of banks. It is relatively low, hence it is not effective in fighting inflation. The interest received on FD is also taxable. Therefore, the yield (net return) is the lowest. But due to the option of withdrawing money when needed, it is the most liquid option.
