Compared to workers with fixed salaries, you could find self-employed persons dealing with inconsistent or fluctuating income. Also, self-employed people do not benefit from the employee provident fund’s protection (EPF). As a result, many self-employed people struggle after retirement to cover their everyday costs.
If your income is inconsistent, you must invest in financial products such as a ULIP plan and others that will help you reach your short, medium, and long-term financial objectives. Also, you’ll require emergency savings to get you through any unforeseen financial crisis in the future. Here are some options you may want to consider closely in this regard.
Here Are Some Of The Top Tax Savings And Investment Options For Self-Employed Professionals In India
PPF (Public Provident Fund)
The government oversees the PPF, which is a leading savings programme. It is among the safest fixed-income investments and has the government’s full support. So if you want a larger return than that of bank FDs and other fixed-income investments, you could invest in the PPF.
During the quarter on March 31, 2021, PPF had a rate of interest of 7.1%. It has a lock-in period of 15 years and is a good choice for long-term financial objectives like retirement. PPF investments are also eligible for tax deductions up to Rs. 1.5 lakh under Section 80C.
NSC (National Savings Certificate)
At every post office in India, you can invest in the NSC, a fixed-income security plan. It is a well-liked small-savings plan with certain returns. It also has a five-year lock-in period. You can apply for a loan against NSC if you have a financial emergency.
If you want a larger return than bank fixed deposits, you may invest in NSC. The rate for the quarter ending March 31, 2021, was 6.8%. Additionally, it offers a tax benefit under Section 80C of a maximum of Rs. 1.5 lakh per financial year.
Bank FD (Fixed Deposits)
With an NBFC or bank, you might make a fixed deposit investment. It is a secure investment that safeguards your money and provides a guaranteed interest rate for a specific time. Your investment amount would be fixed at a given interest rate and unaffected by changes in the market.
Compared to credit cards and personal loans, you can borrow money against bank FDs at a reduced interest rate. As per investments in a tax-saving FD, you can additionally benefit from a tax deduction of a maximum of Rs. 1.5 lakh every fiscal year. The lock-in period for tax-saving FDs is five years.
Depending on your risk tolerance, you can invest in mutual funds to achieve your financial objectives. According to the fund’s investment goals, it invests in equities, debt, a mix of fixed income as well as stocks and gold, among other instruments.
You may as well choose a mutual fund that best suits your investing needs and risk tolerance from the various options available. For example, if you’re a risk-taking investor, you can think about investing in mid-cap funds, which hold the majority of their assets in the equities of mid-cap firms.
Post Office Savings Schemes
The Post Office has several programmes for various types of investors. For example, you may go for post office saving schemes, which have a higher rate of return than bank FDs with government guarantees.
The “post office time deposit account”, post office savings account, post office monthly income plan, and post office recurring deposit account with a 5-year term are among some of your options. Moreover, the Section 80C tax deduction applies to the POTD (post office time deposit).
NPS (National Pension System)
NPS is a pension plan supported by the government. It enables professionals to make retirement investments. You can make recurring contributions to the NPS at any moment during the financial year. It is available to all Indian nationals between the ages of 18 and 60. Depending on your selected options, your investment may be split between stocks, fixed-income securities, and government securities. Also, your investment in the NPS qualifies for tax deductions too.
ULIP (Unit Linked Insurance Plan)
Investors should know what a ULIP plan is and what its modalities are. Investment and insurance protection are combined in a ULIP plan. Policyholders make monthly or yearly premium payments. A ULIP’s goals include wealth growth as well as life insurance protection. It is appropriate for people who are self-employed for the reasons listed below:
- Provides Life Coverage: ULIPs mix investments and life insurance. In unfortunate events like the untimely demise of the investor, it safeguards the family’s financial future.
- Tax Benefits: Section 80C of the Income Tax Act of 1961 enables tax deductions on ULIP premiums up to INR 1,50,000. Section 10 (10D) of the Income Tax Act of 1961 exempts the maturity benefits from taxes for claims arising from the investor’s death. For maturity proceeds upon the regular conclusion of the policy tenure, the same section offers tax exemptions, depending on certain terms and conditions.
- ULIP funds can be flexibly switched by the investor depending on changing life stages, goals, and market movements.
In conclusion, there are benefits and drawbacks to working for yourself. The rules surrounding your timetable and the flexibility of the work are positive. Yet, if you work for yourself, you might not have a steady source of earnings. In addition, you miss out on several employee benefits as well. Being self-employed therefore necessitates having a sound financial and investment strategy to support you during periods of no income and retirement.
At the same time, it is essential to always safeguard your family with a financial safety net so that they can meet their goals, repay debts, and maintain their lifestyle even in your absence.