Investing money wisely is crucial for salaried professionals in India to secure their financial future. With high inflation and rising costs, putting away some amount regularly in investments that give good returns is the only way to build wealth. The good news is that India has a wide range of investment options suitable for salaried individuals.
In this comprehensive guide, we will discuss the best investment avenues in 2024 specifically for salaried professionals. We have analyzed the pros and cons, returns, liquidity, tax benefits, and risks associated with each of these popular investment options.
Factors to Consider Before Investing
Before finalizing the investment products to invest your hard-earned money in, you must take into account the following factors:
- Your financial goals - Are you investing for short-term needs or long-term goals like retirement? This will impact the kind of investments you should opt for.
- Risk appetite - How much risk are you comfortable taking? Options like equities tend to be riskier than fixed deposits.
- Time horizon - Investments like PPF have a lock-in period which may not work for short term financial needs.
- Liquidity needs - Assess if you require regular income from the investment or one-time lump sum amount.
- Tax saving needs - Some options like ELSS offer tax deductions under section 80C.
- Expected returns - Analyze historical returns across asset classes to estimate realistic returns.
- Diversification - Don't put all your money in one investment. Diversify across products.
Best Investment Options for Salaried Professionals
1. Public Provident Fund
PPF or Public Provident Fund is one of the most popular tax saving investment options under Section 80C. It is suitable for salaried individuals looking for safe and guaranteed returns. Some key benefits of PPF include:
- Returns of 7-8% compounded annually.
- Maturity period of 15 years which can be extended in blocks of 5 years.
- Offers EEE status - Exempt on investment, accruals and withdrawals.
- Guaranteed returns backed by Government of India.
- Allows partial withdrawals after 6th year.
- Investment limit of Rs. 1.5 lakh per financial year.
PPF suits salaried professionals looking for a long-term tax saver with debt-oriented means of investing. It is one of the best options for retirement planning.
2. Equity Linked Savings Scheme (ELSS)
ELSS funds are diversified equity mutual funds that come with a tax benefit under Section 80C. They have emerged as a popular investing option due to the high returns generated by equity assets. Here's an overview of ELSS:
- Diversified equity portfolio predominantly invests in stocks of companies across market capitalization.
- Offers highest potential returns of 12-15% over long term.
- Comes with shortest lock-in of 3 years only.
- Ideal for investors with high risk tolerance and investment horizon of 5 years or more.
- Allows lump sum investment as well as SIP investing.
- Tax deduction limit of Rs. 1.5 lakh per financial year.
Salaried individuals who want exposure to equity for wealth creation can consider ELSS funds for the dual benefit of tax savings and high capital appreciation.
3. National Pension System (NPS)
NPS is a retirement-focused investment product designed to provide regular pension income after 60 years of age. Here are some salient features of NPS:
- Option to allocate savings in equity, debt, corporate bonds, etc.
- Choice of 8 fund managers to select portfolio allocation.
- Additional tax deduction up to Rs. 50,000 under Section 80CCD (1B).
- Minimum annual contribution of Rs. 6000.
- Flexible withdrawal options (lumpsum or annuity) after retirement.
- Low fund management charges.
NPS works very well for retirement planning needs of salaried professionals. The market-linked returns can beat inflation and generate a sizable retirement corpus.
4. Employee's Provident Fund
Most salaried individuals have an EPF account which gets monthly contributions from the employer. Here is an overview of its benefits:
- Mandatory 12% contribution from employer on your basic pay.
- Option to make voluntary contributions to earn higher interest.
- Interest rate is declared quarterly based on government bond yields.
- Accumulated corpus is tax-free on withdrawal.
- Provides insurance cover through EDLI scheme.
- Retirement fund that can be transferred while changing jobs.
The compulsory nature of EPF contributions makes it an easy and efficient way to accumulate a retirement corpus while being employed.
5. Bank Fixed Deposits
Bank FDs have traditionally been a popular investment choice due to the fixed and guaranteed returns. Here are some pros of bank FDs:
- Low-risk fixed income investment with guaranteed returns.
- Wide range of tenure options starting from 7 days to 10 years.
- Flexibility of quarterly/monthly/cumulative interest payouts.
- Capital protection and security even in volatile markets.
- Quarterly compounding effect to earn higher returns.
- Rating-wise options to earn 0.25% to 0.5% higher returns.
Salaried investors looking for safe returns superior to savings accounts can consider parking a portion of their surplus funds in short-term bank FDs.
6. RBI Taxable Bonds
For conservative investors who want steady returns with high safety of capital, RBI Bonds are a suitable option. Key features are:
- AAA credit rating makes it a very secure fixed income option.
- 7-year lock-in allows long-term compounding benefit.
- No upper investment limit unlike many tax-saving schemes.
- Quarterly interest payment credited directly to your linked bank account.
- Lower post-tax returns for investors in high tax brackets.
If you want your money to simply grow at a risk-free pace, RBI bonds are more attractive than bank FDs for long-term investors.
7. Sukanya Samriddhi Yojana
Sukanya Samriddhi Yojana is a small savings scheme backed by Government of India focused on girl child needs. Benefits include:
- Higher interest rate than PPF at 7.6% currently.
- Tax-free accruals and withdrawals make returns attractive.
- Account can be opened for a girl child before she turns 10 years.
- Maximum investment of Rs. 1.5 lakh per financial year.
- Account matures when girl turns 21 years old.
- Partial withdrawals allowed after girl turns 18.
Parents looking to secure the financial future of their daughters can open this account. It offers better returns than traditional options like bank FDs.
8. Senior Citizen Savings Scheme
SCSS is a must-have investment for senior citizens looking for regular income. Benefits include:
- Only for investors above 60 years of age.
- Attractive returns at 8% per annum payable quarterly.
- 5 year tenure with option for extension by 3 years.
Quarterly pension payments directly credited to linked bank account.
- Maximum investment of Rs. 15 lakh allowed for a single account.
- Premature withdrawals allowed with penalty after 1 year.
- Interest earned is taxable as per income tax slab.
The safe returns and regular pension payout make SCSS a reliable source of income for retirees and senior citizens.
9. Bank Recurring Deposits
Recurring deposits are suitable for salaried individuals to build a corpus by saving a fixed amount regularly. Benefits include:
- Disciplined investing by depositing a fixed sum every month.
- Tenure ranges from 6 months to 10 years.
- Flexible payout options of monthly, quarterly, yearly or maturity.
- Interest rate is similar but slightly higher than fixed deposits.
- Deposits eligible for loan against the accumulated balance.
- Premature closure allowed with penalty charges.
By investing small amounts at regular intervals, RDs are an ideal way to accumulate funds for short-term needs.
10. Post Office Monthly Income Scheme
MIS accounts offered by India Post provide investors fixed monthly payouts. Key aspects are:
- Monthly interest payouts credited to linked savings account.
- Five year tenure with maximum investment of Rs. 4.5 lakhs.
- Premature closure allowed with penalty charges.
- Interest rate set by Government every quarter based on G-Sec yields.
- Suitable for retired individuals seeking regular pension-like payouts.
- Can be pledged as collateral to avail loans.
MIS is appropriate for conservative investors who want guaranteed income at regular intervals.
Conclusion
Planning investments wisely has become critical for salaried professionals today to achieve financial security. The above list covers the best investment options in terms of returns, safety, liquidity, tax benefits and retirement planning needs. Based on your risk appetite, investment horizon and financial goals, you can choose suitable products from this list to construct a balanced portfolio. Maintain long-term discipline, monitor investments regularly and avoid ad-hoc investing to secure your financial future.