Investment Options for an Employee on his first Job

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Starting to invest and save from the day you start earning a paycheck is a great idea, and if you can reduce your taxes as a consequence, the entire better.

You may want to think about investing through Systematic Investment Plans (SIPs) in Equity Linked Savings Schemes (ELSS) of mutual funds under Section 80C in addition to the Employee Provident Fund contribution that is automatically accessible as a tax deduction. ELSS funds are mutual funds with tax benefits that invest in equities and have a three-year lock-in period.

Additionally, you could think about opening an NPS account so that you can deduct up to ₹50,000 annually from your retirement savings according to an unique section 80CCD (1B) of the tax code.

 FDs offer higher returns than liquid funds, which are designed for ultra-short-term investments and are, as their name implies, liquid. If you have the time to hold the investment for a while, you should consider investing in FDs. If you have more than three years to invest, you should think about debt mutual funds or even FMP (fixed maturity plans).

The returns will be comparable to bank deposits once more, but this time there is a tax benefit as capital gains are taxed differently than other income sources, which is the case with bank deposits, which are taxed at your marginal rate of taxation.

Keep these things in mind to make your investment experience more relaxing.

1. Begin setting aside 30% of your after-Tax Income

Although it is still early, the habits you develop early in life will follow you the rest of the time. Find out how to live within your means. Your post-tax income should be saved at 30%. It will become a habit if you can manage to accomplish this during the first three years of your professional career.

2. Maintain a distinct Bank Account for Spending and Salary

Separate the accounts for your investments and expenses (including wages). Put 30% of your pay into your investment account as soon as you get paid. You will discover how to live within your means if you begin doing it consistently. Even if you might have to decline a few pricey meal invitations or wait until a sale to buy something you desire, such habits will serve you well. Keep in mind that most billionaires you see today purchased their first vehicle secondhand. According to mythology, well after becoming a millionaire, Azim Premji purchased a used automobile from one of his employees.

3. Where to Invest

• Set aside some cash for unforeseen expenses. This can represent 3–6 months of your monthly costs while you are young. It might be kept in a liquid fund (and not a Fixed Deposit).

• The remaining funds can be invested in equities mutual funds.

• Be careful to invest in ELSS to the amount necessary to meet your needs for tax savings (Equity Linked Savings Scheme). You profit from the tax deduction while also making wise long-term savings decisions.

• Delay purchasing life insurance products until after you have paid for committed costs (such as a home loan or the education of your children, etc.).

4. Avoid using Loans or Credit Cards

• It makes sense to take out a loan to pay for your house or college. Keep away from any other loan forms than these. A credit card is not required, however it might be beneficial with the variety of electronic payment methods. Ensure that you pay off your credit card debt as soon as possible.

Top 10 Investment Options

1. National Pension System (NPS)

The National Pension System is a long term retirement – focused investment product managed by the Pension Fund Regulatory and Development Authority (PFRDA). The minimum annual (April-March) contribution for an NPS Tier-1 account to remain active has been reduced from Rs 6,000 to Rs 1,000. It is a mix of equity, fixed deposits, corporate bonds, liquid funds and government funds, among others. Based on your risk appetite, you can decide how much of your money can be invested in equities through NPS. Read more about NPS.

2. Public Provident Fund (PPF)

The Public Provident Fund is one product a lot of people turn to. Since PPF has a long tenure of 15 years, the impact of compounding of tax-free interest is huge, especially in the later years. Further, since the interest earned and the principal invested is backed by sovereign guarantee, it makes it a safe investment. Remember, interest rate on PPF in reviewed every quarter by the government. Read more about the PPF here.

3. Bank fixed deposit (FD)

A bank fixed deposit is considered a comparatively safer (than equity or mutual funds) choice for investing in India. Under the deposit insurance and credit guarantee corporation (DICGC) rules, each depositor in a bank is insured up to a maximum of Rs 5 lakh with effect from February 4, 2020 for both principal and interest amount.

4. Senior Citizens’ Saving Scheme (SCSS)

Probably the first choice of most retirees, the Senior Citizens’ Saving Scheme is a must-have in their investment portfolios. As the name suggests, only senior citizens or early retirees can invest in this scheme. SCSS can be availed from a post office or a bank by anyone above 60.

SCSS has a five-year tenure, which can be further extended by three years once the scheme matures. The upper investment limit is Rs 15 lakh, and and one may open more than one account. The interest rate on SCSS is payable quarterly and is fully taxable. Remember, the interest rate on the scheme is subject to review and revision every quarter.

5. Pradhan Mantri Vaya Vandana Yojana (PMVVY)

PMVVY is for senior citizens aged 60 years and above to provide them an assured return of 7.4 per cent per annum. The scheme offers pension income payable monthly, quarterly, half-yearly or yearly as opted. The minimum pension amount is Rs 1,000 per month and maximum Rs 9,250 per month. The maximum amount that can be invested in the scheme Rs 15 lakh. The tenure of the scheme is 10 years. The scheme is available till March 31, 2023. At maturity, the investment amount is repaid to the senior citizen. In the event of death of senior citizen, the money will be paid to the nominee. Read more about PMVVY.