safe retirement investment options

Safe Retirement Investment Options

If you are approaching retirement age, selecting the safest investment option can be confusing, especially since there are multiple options available on the market, such as provident funds, fixed deposits, national pension schemes, and others.

However, by understanding each instrument and learning how it works, you can decide which investment route you want to take in order to add value to your retirement corpus. Before learning the difference between PPF, EPF, VPF, and FD, you must know what they are.

What is a fixed deposit (FD)?

You can open a fixed deposit Account to put away a certain amount of money for a pre-decided time and earn fixed interest that is higher than the interest rate on a savings account. Upon maturity, your entire corpus is returned to you either along with the interest or the interest is paid to you in chosen intervals.

What makes FDs popular is that they are risk-free as the earnings are not subject to the market. You can also start an FD with a nominal amount to enjoy the benefits of compounding interest.

What is a Public Provident Fund (PPF)?

This scheme is initiated by the government for salaried as well as self-employed individuals, with an objective to provide you with financial security after retirement along with tax benefits. A PPF is a saving-cum-tax-saving instrument that currently offers you an interest rate of around 8%. As the scheme is backed by the government it is absolutely safe and you can start a PPF with an amount as low as Rs.500. The maximum amount you can invest is Rs.1.5 lakh per annum for a tenor of 15 years.

What is an Employee Provident Fund (EPF)?

Under this scheme, if you are salaried, both you and your employer will contribute a monthly sum to your EPF account, provided your organisation employs more than 20 people. This is a specific percentage of funds that are saved each month to provide you with financial stability after retirement. The contributions made towards an EPF equal 12% of your basic salary from both you and your employer, plus dearness allowance. This amount currently generates an interest of approximately 8.55%. The earnings are tax-free under Section 80C of the Income Tax Act.

What is Voluntary Provident Fund (VPF)?

Any amount that you wish to invest from your salary over and above your contribution in EPF account is known as VPF. It is exclusive to salaried individuals and is safe as it is backed by the government. You also benefit from a high interest rate that is the same as the EPF rate. You can also enjoy tax benefits and even transfer your VPF if you decide to switch jobs.

Read on to know how these financial instruments differ from each other.

  • On the basis of eligibility

Fixed deposit account can be opened by any resident of India even if they are a minor as long as they conform to the eligibility criteria of the NBFC. You can open a PPF account if you are salaried or self-employed, however, you can open VPS or EPF account only if you are salaried and meet the minimum age requirement.

  • On the basis of the lock-in period

You can select lock-in period of fixed deposits as per your requirement. NBFCs such as Bajaj Finance offer you flexible Fixed Deposit tenure ranging from 12 to 60 months as per your financial convenience. In contrast, EPF, PPF and VPF accounts are active till the time you are an employee and have a minimum tenor of 15 years. All 3 have different rules with regard to premature withdrawal.

  • On the basis of tax benefits

Fixed deposits and the provident fund can help you reduce your tax burden as you can claim deduction under Section 80C of the amount invested up to Rs.1.5 lakh. Plus, you can get tax exemption on earnings up to Rs.10,000 on FD interest. With PPF, your entire interest is exempt from tax. Similarly, while you can claim tax deduction and interest exemption on principal and earnings from EPF and VPF too, if you withdraw any amount before 5 years, it is eligible for tax.

  • On the basis of loans

You may face an unforeseen circumstance that compels you to arrange funds immediately. In such cases, loans are the best way to fund your requirements. NBFCs offer you overdraft facility on your FD at a slightly higher interest rate for any personal needs. You can also withdraw money from EPF or PPF account if you meet the eligibility criteria and for specific purposes such as home improvement, marriage or others. However, you may find that it is easier to withdraw an amount from your FD than it is from government-run schemes, which can be time-consuming.

  • On the basis of the investment amount

In case of fixed deposit, you can start by investing as low as Rs.1000 while the maximum limit of the amount to be invested goes up to Rs.1 core and even above. In PPF, your minimum starts from Rs.500 and maximum to Rs.1.5 lakh a year. For VPF, your monthly contribution can be 100% of your salary and dearness allowance. EPF also depends on your salary and equal 10%-12% of your basic wages and dearness allowance.

Before investing your hard-earned savings, research and understand how each investment can benefit you financially and work alongside your goals. This way you can choose the best investment option and earn high returns. If you are looking for a safe place to hold your money for a short timeframe, an FD is a great choice. You can use the FD calculator to know the exact value of your investment upon maturity.

Lucia Adams

Author Bio: This article has been shared by Lucia Adams who is a professional writer and blogger.