Tuesday, October 23, 2018

Why PF?

Why to Invest in PF ?

To be frank, most of us, especially the salaried, PF gets done by the company where you work. Government has now made it compulsory, for companies to provide Provident Fund  for all employees.

The good part about PF, is that one doesn't have to do it manually. Its mostly deducted from your salary and invested in your PF account.  Normally, its 12% of your basic component which you invest and 10% is paid by the Company. The best part of this investment is the Interest Rate and the power of compounding which acts on this investment

Even if your Basic Salary is 15,000/- INR, then your PF will be 1800/- from your side and 1500/- from the company, each month. That adds up to 3300/- per month. Though your salary would increase every year, I will still consider the same amount for 40 years of your working life and see how it adds up.

Use a compound Interest Calculator and you will realise that the amount comes to 10,657,413/- which is more than 1 crore. Its but obvious that everyone's salary will increase with time and hence the amount which gets added into the PF account will increase every year and hence you can expect a good return during retirement.
Please make sure to check your PF accrued amount from the PF website, where the passbook is updated in a very detailed manner.

Apart from this PF, there is another instrument, which is Public Provident Fund, which one can invest apart from PF. You will need to open a PF account in one of the Banks, I would suggest SBI. You can invest, upto 1,50,000/- each year and all of this can be used against Tax Deductions under Section 80ccc.
The point to be noted here is that , investment in PPF gives you benefit during investment. There is no Tax applicable on the accrued interest and also, no Tax applicable, when you withdraw the money. Thats a huge bonus. Hence in most of my investment talks , I would strong advise investing in PPF for your retirement planning.

However, just like PF, this amount cannot be easily withdrawn. Only after 7 years, you can take a loan against your PPF account. And some part of the money can be withdrawn for any emergency purposes, which are listed.

Hope you will take up the right step in investing and start investing in PF . Thanks for reading.

Friday, March 9, 2018

NPS - Should I Invest in it ?

The National Pension Scheme, or the NPS, which its commonly called, has gained more and more popularity over the past few years, is indeed a very good way to save your money.
For one, its a scheme pushed by the government, but It would still be investing the funds in the different investment avenues, which the traditional government driven initiatives, would keep away from. In short, apart from many debt funds, based on the option one chooses with the NPS partner bank, one can invest in many of the Equity Based Funds.
So, the next question would be, how is it different from investing in Mutual Funds ? More than one, to be precise.
  1. This is meant to be a Retirement Fund
  2. There is Tax Benefits under section 80CCD (80 CCD(1) and 80CCD(2))  while investing the amount.
  3. These Tax Benefits are over and above the Tax Benefits under section 80CCC, which currently(Budget 2017), is pegged at 1.5L only. Mutual Funds investment come under this 1.5 Lakhs investments.

Now coming to the NPS itself, the investment can be done in two forms, under section 80CCD(1) and 80CCD(2), or in layman terms, from Employee and Employer. 
If the investment is done by the Employer, then the maximum investment, that one can do is 10% of your basic salary and  capped at 1.5 Lakhs per annum.  While the Employee's contribution can be a maximum of 50,000/- per annum.
So if your basic salary is 10Lakhs, then under section 80CCD(2) you can invest up to 1 lakh per annum and get tax benefits, while under section 80CCD(1) you can get additional benefits of 50,000/- .
A bit of clarification, on the so called Employer's contribution. Its not that the Employer might be adding further investment, and this might still be taken as a part of your CTC.
Now, coming to the Tax on the Returns from NPS.
The contribution made towards the NPS scheme, could be withdrawn on Retirement or by Surrender of the Policy.  As per the Budget 2016, 40% of the returns from NPS would *not* be taxed. However, as per the Budget 2017, if the entire returns from the NPS be converted into a Annuity Plan in the same year, then there would be no tax applicable at all.
In Summary, those who have to plan for their retirement and still save taxes, this is an excellent way on both the counts. And more so, for those, who have ran out of all further options to save taxes after the section 80CCC is all filled up by your Insurances/ULIPs/Home Loan etc.
Each NPS account will have an unique PRAN Card and that account number will be associated with your PAN and hence it would be likely that only one PRAN account would be applicable per person.

Few Pointers to keep in mind 

  1. Investment in NPS is meant for Saving for Retirement
  2. 50,000/- can be invested on Section 80ccc, above your 1,50,000/- in other instruments. Well, you can also invest the whole 2,00,000/- in NPS.
  3. Apart from the above , you can invest upto 10% of your basic in NPS, capped at maximum of 1,50,000/- per year.
  4. These investments can be converted into an annuity, which can make it tax free on withdrawal. If not, then it will taxed based on your taxable bracket.
  5. This investment instrument is not just for Salaried Class, and can also be availed by those in business or self-employed
  6. The age limit for investing in NPS is from 18 to 65 years of age.