Jul 25, 2016, 08.50 AM IST
Here are eight ways to make the most
of the 7th Pay Commission bonanza
The incomes of Central government employees and pensioners are poised to rise. They will also get the arrears for the past seven months. Here are some suggestions on how to handle this sudden flush of liquidity. These eight investing ideas can go a long way in securing your financial future.
CONTRIBUTORY PF
Opt for higher contribution to Provident Fund account
The Contributory Provident Fund is a great way to build a tax-free corpus for your retirement. Intimate the accounts division of your office to deduct a higher contribution from your salary towards the CPF. General Provident Fund allows an employee who opts for a higher contribution to change the mandate twice in a year. Also, a portion of the corpus can be withdrawn for specific purposes and emergencies.
RECURRING DEPOSIT
Interest rate does not change till deposit matures
If you are looking to save for a short-term goal, go for recurring deposits. It is a safe option that inculcates the saving habit. Banks offer recurring deposits of up to 10 years, but one should choose a tenure that matches one's requirements. The big advantage is that once you start a recurring deposit, the interest rate does not change. So, even though rates may fall, you continue to enjoy the contracted rate till the deposit matures.
NEW PENSION SYSTEM
Avail of additional tax benefit on NPS investments
The additional money coming your way can help you save tax. Invest up to Rs 50,000 in the NPS to get additional tax deduction under the new Sec 80 CCD (1b). This is over and above the tax deduction under Section 80C. The tax benefit means a person in highest 30% tax bracket effectively invests only Rs 34,550 (he immediately gets a tax benefit of Rs 15,450). You can invest in a mix of equity funds, corporate bond funds and government bond funds. There is also a lifecycle fund that invests as per your age.
LIFE INSURANCE COVER
The incomes of Central government employees and pensioners are poised to rise. They will also get the arrears for the past seven months. Here are some suggestions on how to handle this sudden flush of liquidity. These eight investing ideas can go a long way in securing your financial future.
CONTRIBUTORY PF
Opt for higher contribution to Provident Fund account
The Contributory Provident Fund is a great way to build a tax-free corpus for your retirement. Intimate the accounts division of your office to deduct a higher contribution from your salary towards the CPF. General Provident Fund allows an employee who opts for a higher contribution to change the mandate twice in a year. Also, a portion of the corpus can be withdrawn for specific purposes and emergencies.
RECURRING DEPOSIT
Interest rate does not change till deposit matures
If you are looking to save for a short-term goal, go for recurring deposits. It is a safe option that inculcates the saving habit. Banks offer recurring deposits of up to 10 years, but one should choose a tenure that matches one's requirements. The big advantage is that once you start a recurring deposit, the interest rate does not change. So, even though rates may fall, you continue to enjoy the contracted rate till the deposit matures.
NEW PENSION SYSTEM
Avail of additional tax benefit on NPS investments
The additional money coming your way can help you save tax. Invest up to Rs 50,000 in the NPS to get additional tax deduction under the new Sec 80 CCD (1b). This is over and above the tax deduction under Section 80C. The tax benefit means a person in highest 30% tax bracket effectively invests only Rs 34,550 (he immediately gets a tax benefit of Rs 15,450). You can invest in a mix of equity funds, corporate bond funds and government bond funds. There is also a lifecycle fund that invests as per your age.
LIFE INSURANCE COVER
Low-cost term plan safeguards the future
of your dependents
Life can be unpredictable. Adequate life insurance cover helps mitigate the financial stress on a family if the breadwinner passes away. Ideally, the insurance cover should be 6-7 times your annual income. While traditional life insurance policies have very high premiums, a low-cost term plan can give high cover without straining your wallet.
MUTUAL FUNDS
Take exposure to stocks with tax-saving ELSS funds
Equities play a critical role in an investment portfolio. Even the most conservative portfolio should have some exposure to stocks to be able to beat inflation. You can invest in stocks through mutual funds. The ELSS category is a best option for new investors. These schemes are eligible for tax deduction under Section 80C. The returns are tax-free because long-term capital gains from equity funds are exempt from tax.
MONTHLY INCOME PLANS
If wary of stocks, go for low-risk mutual funds
If the thought of investing in stocks unnerves you, go for low-risk monthly income plans (MIPs) or debt funds. MIPs have only a small portion (15-20%) of their corpus invested in stocks. The rest is in bonds and deposits. Debt funds are even less risky. They don't have any exposure to stocks. Debt funds are a better option than fixed and recurring deposits because the income is taxed only at the time of withdrawal and that too at a lower rate. However, the returns of these funds are also lower.
Life can be unpredictable. Adequate life insurance cover helps mitigate the financial stress on a family if the breadwinner passes away. Ideally, the insurance cover should be 6-7 times your annual income. While traditional life insurance policies have very high premiums, a low-cost term plan can give high cover without straining your wallet.
MUTUAL FUNDS
Take exposure to stocks with tax-saving ELSS funds
Equities play a critical role in an investment portfolio. Even the most conservative portfolio should have some exposure to stocks to be able to beat inflation. You can invest in stocks through mutual funds. The ELSS category is a best option for new investors. These schemes are eligible for tax deduction under Section 80C. The returns are tax-free because long-term capital gains from equity funds are exempt from tax.
MONTHLY INCOME PLANS
If wary of stocks, go for low-risk mutual funds
If the thought of investing in stocks unnerves you, go for low-risk monthly income plans (MIPs) or debt funds. MIPs have only a small portion (15-20%) of their corpus invested in stocks. The rest is in bonds and deposits. Debt funds are even less risky. They don't have any exposure to stocks. Debt funds are a better option than fixed and recurring deposits because the income is taxed only at the time of withdrawal and that too at a lower rate. However, the returns of these funds are also lower.
ATAL PENSION YOJANA
Secure your future with this new pension scheme
A typical retirement plan is a mix of several options. The Atal Pension Yojana
is a good addition to make in your retirement planning. It is open to people
under 40 and offers pension for life. To get a monthly pension of Rs 5,000, one
needs to invest in the scheme till the age of 60.The pension will start after
retirement and continue for life. On death, Rs 8.5 lakh would be given to the
legal heirs of the investor.
SUKANYA SAMRIDDHI YOJANA
Save for daughter's education and get tax benefits
The Sukanya Samriddhi Yojana is another good scheme to invest in. However, it
is only for girls below the age of 10 and there is an annual investment limit
of Rs 1.5 lakh. Contributions are eligible for Section 80C benefit and the
corpus is taxfree. Though the returns are assured, the interest rate could go
down in future because it is linked to the government bond yields. Even so, it
will be higher than what the PPF offers.
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