Explore often overlooked but crucial investment avenues for financial planning, including NPS, fixed-income options, and the importance of term insurance for a secure future.
Evaluating the ROI (Return of Investment) is one of the fundamental activity that every individual performs while doing any investment but other non financial factors shall not be neglected. Here are the eminent Investment Avenues often ignored due to their lower ROI but are the core of the Financial Planning gainful from the young age till retirement.
NPS: It is an ideal investment option for the retirement planning. An individual can contribute regularly in the pension account during the working life and can get the benefit of regular income after retirement. The contribution is then invested in equities yielding returns as per the market risk over the period of time. It has offered returns that are much higher than the traditional forms of investing . In simple words , its a market linked product where you can invest in a mix of equity, government debt, corporate debt, and alternative assets . Individual usually ignore this tool at early stage of life which becomes their biggest regret in future because the sooner you invest , the more you get the benefit of compounding . Hence Discovering the magic of compounding becomes essential for big corpus fund . This investment is also acts as an efficient tool for tax planning in the following ways;
1. Employee’s Contribution to NPS is Tax deductible up to 10% of pay ( Basic + DA) under Section 80 CCD(1), subject to a maximum of Rs.1.50 lakh under Section 80CCE. Also additional deduction up to Rs. 50,000 under Section 80 CCD(1B) in addition to the above overall limit.
2. Employer’s Contribution enjoys tax deduction of up to 10% of salary (Basic + DA) (14% if such contribution is made by the Central Government)
However individual shall always keep in mind their investment targets while looking out for tax saving options.
Fixed income-Low risk Investments : Fixed income returns are ignored now a days due to the glittering returns from High Risk investments . But investing doesn’t only aims to grow wealth, but to also meet financial goals and to ensure that you don’t lose the value of money. The later can be achieved by diversification of portfolios into such asset classs which can provide an edge at the time of negative returns .Fixed Income Investments are FDs, PPF , Government securities and Bonds etc . These instruments can help you at the time of emergency as they are highly liquid and risk free as compared to high return instruments . For e.g – At the time of uncertainity , Money can be withdrawn from FD prematurely after certain charges however , individual would be sure that this money would never come at the loss despite of losses from equities in unfavorable market conditions . The only thing to be considered while investing in such asset class is that the investment shall outpace the inflation . For this purpose, the returns shall be compared to the projected inflation commentary given by the Government and external agencies like IMF.
Term Insurance/ Life Insurance: People often mix up insurance with an investment avenue but the basic essence of such insurance is to provide a financial cushion to your family at unfortunate times of their lives and No opportunity cost can ever precede the benefits of this investment . The younger you are , the lower cost of insurance (premium) u pay hence the cheaper investment.
Hence, Do check out whether these investments forms the part of your portfolio or not .
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