As a government employee vested with a lot of duties and responsibilities, it becomes very difficult for one to divert time and attention towards tending to one’s personal needs. But in the absence of a sound emotional, psychological and financial support system, it becomes impossible for one to manage their professional lives optimally. This article seeks to address one such aspect i.e. investments that government employees may undertake in order to safeguard their financial interests.
What is an Investment Plan?
Designed with the objectives of safety of investment, guarantee of return, and tax minimisation, investment plans are indispensable to meeting one’s financial goals. These are financial products that are essential in order to systematically achieve one’s financial goals. It does not only contain the financial goal that one seeks to achieve, but the means through which it can be met in a specified time duration.
Investment plans are said to offer the following benefits to the investors –
- Multiplying stagnant funds to create wealth.
- Securing the future of family members with the income generated.
- Ensuring financial goals are easily met through sustained effort.
- Making use of tax benefits available under law.
What are the Types of Investment Plans that a Government Employee Can Choose from?
There is a plethora of investment options available and the government employee can choose from three major kinds of investment plans.
Low risk investment plans
- These portfolios investments are generally low risk and have low volatility.
- There is a reliable and stable growth of capital, but the returns received are not very high. This might seem like a fair trade off in light of the minimal risk involved.
- Examples: National Pension Scheme, Public Provident Fund etc.
Medium risk investment plans
- These portfolios offer diversified and balanced investments providing opportunities for growth.
- They come with moderate risk and acceptable levels of market volatility.
- Examples: monthly income plans, arbitrage funds and hybrid debt-oriented funds.
High risk investment plans
- These portfolios experience a high degree of volatility and the returns promised in the long term are high.
- Examples: direct equity, mutual funds, ULIPs etc.
Steps Involved in Choosing a Plan
|Step 1||Deciding what the financial goals are and the time horizon available for each of them.|
|Step 2||Evaluating the ways in which these goals can be achieved by weighing pros and cons of all actions after extensive research.|
|Step 3||Create a diversified portfolio and allocate your corpus among each of the investment plans with care|
|Step 4||Periodically monitor the progress toward your investment goals.|
|Step 5||Review and reorient the plan in case of deviation from the financial goal.|
Various Investment Plans to be Availed by a Government Employee
- General Provident Fund
The government equivalent of the Employees’ Provident Fund, the General Provident Fund is a safe investment that offers a high rate of return to the employee. A part of one’s salary is compulsorily deducted towards the contribution and one can opt in to pay more than the compulsory minimum contribution.
- Public Provident Fund
Originally an exclusive fund for government employees, the Public Provident Fund, which is exempt from all stages of investment. A secure investment backed by the government, PPF offers a higher rate of return than regular savings bank accounts. The investment is locked in for a period of 15 years that is extendable for a period of 5 years thereafter. The minimum amount that is to be invested is Rs. 500 and a maximum of Rs. 1,50,000 is the maximum sum that can be invested annually. The investor can truly experience the power of compounding by investing in the said fund.
- National Pension Scheme
Mandatory for all government employees, the national pension scheme was created to offer retirement income to individuals. The employee has the option of channelising his or her investment towards equity, corporate bonds or government securities – that flexibility and security of investment makes this scheme a popular option for not just the government employee but the general public too. The investments made into the NPS are liable for tax deduction under Section 80CCD (1B) of the Act provided that it is less than Rs. 50,000.
- Bank deposits
Time deposits such as fixed deposits and recurring deposits, offered by banks and non-banking financial institutions, are an excellent means to earn some interest income through disciplined investing. The interest income earned is eligible for tax exemptions under Section 80C of the Income Tax Act.
- Mutual Funds
Some of the best investment options available in the market to beat inflation, mutual funds, are popular investment options that risk bearing individuals must resort to reap substantial rewards. There are numerous kinds of mutual funds that can be invested in ranging from debt funds, equity funds, balanced funds, hybrid funds, ELSS etc. Some of these mutual funds such as ELSS are covered under Section 80C of the Income Tax Act, enabling the tax payer to make a saving of at least Rs. 1,50,000 annually.
Long term planning and wealth accumulation requires some investment in terms of time and effort. A thorough understanding of the pros and cons of investing into these investment plans, will help you create a more diversified, profitable portfolio that will secure your financial future.
Frequently Asked Questions
- What is a government saving scheme?
These are schemes specifically launched by the government to encourage the habit of savings in people. They earn a fixed rate of interest and come with several tax benefits, to incentivize people to invest into them.
- Are public provident funds a type of savings scheme?
A public provident fund is one of the most successful saving schemes run by the government of India.
- What are the most important considerations to be kept in mind while creating an investment plan?
One must be very clear of his or her financial goals, the timelines associated with it, the current expense to savings ratio and future expense to savings ratio, the contingencies for which some savings have to be set aside and the alternate options available.