Retirement Planning: Focus on the Self-Employed

Independently employed individuals have to be extra vigilant when it comes to initiating retirement planning as there is no source of earning in the form of pension from the government.

However, there are few options that can serve the purpose of long-term investment tools while ensuring a stable income or pension during the phase of retirement. 

Public Provident Fund (PPF): A PPF account can be used as a long-term saving product in which one can invest up to Rs 1.5 lakh on a yearly basis and claim tax-deduction benefits under Section 80C of the Income-tax Act (ITA), 1961. At the same time, the interest earned and maturity amount after 15 years are also tax-free. If an individual prefers, they can look forward to further extending the PPF account in blocks of five years each.

National Pension Scheme (NPS):  A self-employed individual can also open NPS accounts and look forward to earning a steady income after retirement through market-linked returns. In addition, an investment of Rs 50,000 in an NPS account on a yearly basis qualifies for a deduction above the Rs 1.5 lakh limit under Section 80C of the ITA. An individual can reach out to a financial planner to gain further insight on the scheme. 

National Savings Certificates (NSCs): An individual can purchase NSCs at the post office for a tenure of five years. Currently, the interest rate on NSC deposits is 7.7%, which is comparatively on the higher side than most of the bank fixed deposit schemes. Any investments in NSC offer the benefit of tax deduction under Section 80C of the ITA. There is also possibility to re-invest the maturity amount after maturity on a long-term basis to build a suitable retirement corpus.

Mutual Fund Schemes: A conservative individual with a low risk appetite can consider mutual funds, which are relatively safer and hassle-free as compared to stocks. However, mutual funds are also subject to market risks. An individual can also look at a solution-oriented retirement fund, which is an open-ended mutual fund with a lock-in period of five years or the retirement age whichever is earlier. Ideally, it is suitably advised to reach out to a professional financial advisor before making the move to invest in a particular fund.