The New Year is the perfect time to review your finances, invest in instruments with high returns and ensure that your savings are working for you. Whether you want to achieve your mid-term financial goals or want to secure your retirement, you can invest in an array of secured financial instruments like provident fund, fixed deposits or recurring deposits to earn assured interest on the invested sum. Resolving to invest your bonus and extra savings in a provident fund this New Year is a good idea as it offers substantial returns of 8%.
Wondering why? Here are some reasons why provident funds are a smart investment option.
Fund your post-retirement expenses
You can invest your savings in a provident fund(PF) to secure regular expenses that you will incur once you retire. It is a long-term investment option that offers the benefits of compounding, thus aiding in building a sizeable retirement corpus. The biggest benefit that you can enjoy with PPF, is the safety and security it offers for your money. This is because PPFs are backed by the government.
The amount you invest and gain as interest through a provident fund, is exempt from tax under the provisions of the Income Tax Act. Also, the interest earned on the deposit as well as the amount you receive at the time of maturity, is free from tax deductions. Moreover, basis how much you invest, you can claim an exemption of up to Rs. 1.5 lakh annually as per Section 80C of the Income Tax Act.
A Provident fund is an instrument that is backed by the Government of India. Therefore, it involves lower risk in comparison with other financial instruments. When you invest your hard-earned savings in this option, you can expect it to be risk-free also because the money isn’t parked in market-linked instruments. So, investing in PPF is the right decision for you, if you are risk-averse as it offers two layers of protection.
Although PPFs come with a lock-in period, you can withdraw from the initial deposit after the lock-in period is up. The maximum amount you can withdraw from your public provident fund account is 50% of the previous year’s balance. Thus, if you have urgent monetary needs or have to cater to short-term requirements, you can withdraw money from your PPF account by following certain guidelines.
Take a loan against your investment
In case you don’t want to disturb your investment by liquidating it, you can avail a loan against your public provident fund account. You can get a loan up to a specific percentage of your PF balance, as prescribed by the lender. However, the rate of interest for this loan is slightly higher than the interest you earn on your PF account. Pledging extra collateral may help you bring it down marginally.
To further increase your earnings from PPF you can invest your PPF’s maturity amount in a fixed deposit and earn assured returns over time. For instance, you can invest in a cumulative FD of at least 36 months and earn up to 8.75% as a regular investor, or 9.10% as a senior citizen when you choose a Bajaj Finance Fixed Deposit. So forecast returns using an FD calculator and invest in these vehicles today.