Financial Planning: Gaurav Mashruwala

I am a 28-year old and I work with an architecture firm. We are hired as professionals and, therefore, do not have an Employee Provident Fund (EPF) account. I want to create a retirement corpus. In the absence of tax-free EPF, should I invest in the New Pension System (NPS)? But I do not know the tax liability on investments in NPS. I read somewhere that the returns are higher than EPF. How much does NPS pay annually? Also, please suggest other options, if any.
Returns from NPS are not guaranteed. Also, there aren’t many options available within equity as an asset class in NPS. On the other hand, at present, there is no long-term capital gains tax on direct equity and equity mutual funds. Considering these, I suggest you invest in equity-based mutual funds directly via a systematic investment plan. You may not get tax benefit under Section 80C, if you invest in equity mutual funds in general. Instead, if you opt for equity-linked savings schemes, according to the current provisions, there are tax benefits available. You should revisit your decision about NPS once the Direct Taxes Code comes into effect. And, NPS may offer more variants eventually. Lastly, considering your age, I suggest you build your retirement corpus by investing in equities. For other readers in general, the Public Provident Fund is also an option to consider for building their retirement kitty.

I am a 54-year old and I plan to take a voluntary retirement next year. I would be eligible for a lump sum payout of Rs 15 lakh. I would like to invest half of this amount for my three-year-old grandson, such that it may be transferred to him when he turns 21. How do I invest this amount? I would like to retain the remaining as an emergency corpus. What instruments can I park these funds in?
If you want to transfer the amount to your grandson only once he turns 21, you will have to create a trust. If you are comfortable transferring the amount to him once he turns 18, you may invest in his name and appoint a guardian. A trust is a legal entity. You will have to open a bank account, obtain a permanent account number and file income-tax returns on a regular basis. All these hassles may not be worthwhile for the sum mentioned. However, operationally and legally, they are possible.

Since your investment horizon is long term, you can deploy the desired corpus in equity-based mutual funds. A private family trust is also allowed to invest in mutual funds.

The writer is a certified financial planner. The views expressed are his own. Send your queries to yourmoney@bsmail.in