Financial Planning: Gaurav Mashruwala

I am a 28-year old, working 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 National Pension Scheme (NPS)? However, I do not know about taxation on investments towards NPS. I read somewhere that NPS returns are higher than EPF. How much does NPS pay annually? Also, suggest other better options, if any. I can set aside Rs 10,000-12,000 monthly towards building the retirement corpus.
Even as NPS returned 12 per cent last year, returns are not guaranteed. They depend on the performance of NPS’ seven designated pension funds. The highest returns can come only from the equity scheme which invests up to 50 per cent in equity through an index fund. However, in NPS, there aren’t many options available within equity as an asset class.

Currently, there is no long-term capital gains tax on direct equity and equity mutual funds. Considering these facts, I suggest you invest directly in equity-based mutual funds through a systematic investment plan (SIP).

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, there are tax benefits available in accordance with current provisions. You should revisit your decision about NPS once the Direct Tax Code has been codified and NPS offers more variants. Last, considering you are young, the focus of my reply is on equity. For other readers in general, Public Provident Fund (PPF) is also an option.

I am 54 years of age, planning to take voluntary retirement next year. I would be eligible for a lumpsum payout of Rs 15 lakh. I would like to invest half of this 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 amount as an emergency corpus. What instruments can I park these funds in?
If you want to transfer the amount to your grandson only when he turns 21, you will have to create a trust. If you are comfortable transferring the amount 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 (PAN) and file income-tax returns on a regular basis. All these hassles may not be worthwhile for the sum mentioned by you. However, operationally and legally they are possible. Since your investment horizon is long, 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. Send your queries to yourmoney@bsmail.in