Best Investment Plans for Self-Employed Professionals in India

A long-term safety net of the Public Provident Fund can act as a formidable cushion for retirement. A PPF is governed by the Ministry of Finance and is a long-term, tax-exempted instrument with a compounded interest rate of around 7-8% (compounded annually). With a maturity tenure of 15 years, it offers a triad benefit of security, guaranteed returns and tax benefits. Another stable return option can also be fixed and recurring deposits with banks, which keep your capital safe, giving a similar return to that of a PPF. Though the returns are taxable but it is liquid and can be an option for a short-term tenure.

National Pension Scheme or NPS is a plan offered to both residents and non-residents. This is also a long-term strategy that provides market-based returns. A regular contribution during your work tenure in this scheme helps to build a retirement corpus. A portion of which you can withdraw as you begin your retirement life, and the rest is given as per your annuity plan selected. The main advantages that you can enjoy if you go for this instrument are :

• A regular income flow as soon as you begin your retirement journey. A lump sum at the time when your earning dwindles can give you a financial boost and help with any medical emergency, travel plans, and even maintaining your lifestyle.
• Taxation on NPS gains and maturity amount is also nil. Per year, INR 1,50,000 of NPS deposits are untaxed as per the Income Tax Act 1961, under section 80C. Tier I contributions are eligible for an additional amount of tax deduction amounting to INR 50,000 under section 80CCD over and above the 80C limit.
• NPS has an inbuilt risk adjustment mechanism, due to which it automatically reduces your equity exposure as you approach retirement age.

Equity-linked Savings Schemes (ELSS) are mutual fund schemes with a 3-year lock-in period and tax benefit under section 80C. These funds are invested in diversified equity for 3 years. You can even go for a monthly systematic investment plan, offering you the flexibility of investing the available amount rather than sticking to a fixed amount. The major advantages of this type of investment for the self-employed are the shortest lock-in period among the tax-saving instruments and higher returns from equity exposure. If you are risk-tolerant and aggressive enough to appreciate higher returns than guaranteed deposits, this is one of the best options available for you.

The Non-ELSS mutual fund schemes, on the other hand, offer flexibility of tenures and a probability of a higher return on the same investment. You can choose from a basket of equity, debt and hybrid funds and align your savings and returns with your retirement tenure, other financial objectives like vacations, children’s education and your risk-taking capability. Equity funds can give you long-term capital appreciation with a higher risk. Debt funds, though lower in the risk category, give a lesser yet stable return. Hybrid funds are mixed schemes with diversification in equity as well as debt funds. If you are a beginner and want to understand the market cycles, enter with a small amount first by a systematic investment plan. Here, you make a small investment every month or quarter, as per your choice, in any of the mutual fund schemes. Due to the impact of rupee cost averaging, your average cost of purchase tends to be lower, and hence increases the net returns even in a volatile situation. This also inculcates a disciplined and forced way of savings as it is an automated process once set up is done.

Direct equity may seem lucrative, but it is an extremely risky proposition. There is no guarantee of stable returns, and not all in the past have gained from this investment. A lot of thorough research, market tracking, quick decision and general awareness is required to make it big in stock exchanges. It requires a solid understanding, immense patience and a strong risk appetite to deal in stock exchanges for years.

Being self-employed, you do not enjoy any benefits of group mediclaim or the employer’s insurance covering your emergencies. The best options are two fundamental insurance policies, like life or term insurance and medical insurance for yourself and the dependents of your family. Some benefits that any insurance will offer :

• Emergencies and accidents do not announce their entries. Insurance ensures that you are not ill-prepared. It takes care of both your financial and physical well-being.
• Financial stability is not only about yourself but also about protecting your loved ones during medical distress. A mediclaim with a family floater benefit can be a saviour in such a case.

To understand and compare plans that can give you the benefits of insurance as well as market equivalent returns, you can log in to jioinsure.in and select industry-best options.

Final Say

No matter what the situation is or what your profession is, always align any of your investments to your risk tolerance levels and your financial goals. These instruments, like PPF, NPS, and other mutual funds, can give you options of varied returns at varied tenures, but it is you who need to decide how much to diversify and where to ease your retirement.