Saving for retirement is a major focus for young private employees these days. The first question they asked to “When we need to plan for money savings for retirement”? The proper answer is to start saving from the day you start earning. With numerous investment avenues coming up, it is becoming increasingly difficult to choose the right investment asset class.
For risk averse investors however, PPF and VPF are the best avenues to invest for retirement.
Voluntary Provident Fund as the name suggests is a voluntary contribution; the employee can choose to increase his/her contribution to the existing employee provident fund account over and above the 12% which is mandatory. An employee can contribute a maximum of 100% of his basic salary and DA. This amount will earn the same rate as the normal EPF contribution and considered as investments under section 80C hence exempt from tax. One needs to inform the employer to initiate VPF.
Public Provident Fund is another tax saving instrument. The minimum investment amount in a PPF is Rs. 500 and the maximum is Rs. 100,000. It can be opened with any nationalized bank or post office. It is also included as part of the investments under section 80C. Compared to VPF interest rates, the interest in PPF is lower at 8.1%. While a VPF can be withdrawn anytime, the PPF has a lock-in period of 15 years.
Both these options are availed typically as a means of saving tax. Do Not invest only for the purpose of reducing tax. There are other investment products which would help you in both capital growth and tax saving. Take advice from your financial advisor and plan for your investments in effectively.