It is a good idea to set a certain amount by way of investments from your salary. It is also a a very good idea to first remove a fixed sum from salary and than use the remaining for household expenses. Here are 4 instruments that you must invest from your salary.
Public Provident Fund
The Public Provident Fund (PPF) is an instrument that every salary earner must consider for numerous reasons. The first and foremost is the interest rate of 7.9 per cent, which is superior to bank interest rates. The interest on the PPF is tax free in the hands of investors.
It is important to remember that PPF also qualifies for tax benefit under Sec80C of the Income Tax Act. This means if you invest a sum of Rs 1.5 lakhs, the same qualifies for tax break.
The one advantage of the PPF is that it helps you build a corpus for retirement, given that it has a tenure of 15-years.
Recurring deposits are also not a bad bet for those looking at building a corpus. Most of the banks offer an interest rate of around 6 to 8 per cent. Remember, unlike bank deposits, recurring deposits are very much taxable.
Individuals may look at investing in the name of the spouse if they wish to take advantage of tax breaks. It is important to remember that you need to do a little research before investing in recurring deposits, especially with regards to interest rates.
Systematic Investment Plans
Systematic Investment Plans (SIPs) are also a great way of investing. The beauty of SIPs is that they allow you to invest small sums of Rs 500 to Rs 1,000 every month. The initial amount could be as small as Rs 5,000.
Here again, you may need some advise to pick the right kind of investment. There are various large, small and midcap investment schemes that you may look at for SIPs.
You can also look at debt dedicated funds, which invest money in debt. These are now risky investments as compared to equity mutual funds.
Post office recurring deposits
This is also a very safe investment that you could consider from your salary. The interest rate offered is 7.2 per cent, which is compounded every quarterly. A joint account can be opened by two adults. Interestingly, the account can be transferred from one post office to another. Here again the interest is fully taxable and hence there is no tax break.