Tax Query: Is investing in Post Office schemes and FDs a good option?

A moderator investor, aged 37 years, wants to sell a portion of gold worth Rs 15 lakh. He wants to build a corpus of Rs 3 crore by the time he will attain 60 years of age. Is it possible to build such a huge corpus? If yes, whether investing in the post office saving schemes or government FDs help? If not, what are the other investment options available for him?

Government-backed schemes like post office saving schemes and bank fixed deposits offer assured returns and are safer than any other market-linked investment options. However, the post-tax returns from these options fail to beat inflation over the long term and as a result, the money loses its value. 

When your investments do not maintain a proper pace with inflation, you will not be able to achieve your financial goals. Over a long period, the cost of goals also rises. The inefficiency to beat inflation results in a huge gap between your corpus and the cost of your goal.

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In such a situation, it is recommended to park your hard-earned money in equity-linked mutual fund schemes. These schemes offer potential returns after beating inflation and enable investors to meet their long-term financial goals. 

Let’s understand the situation with a brief example. Assuming an annual return on your equity investments of around 12%, you need to spend about Rs 30,000 a month in order to make Rs 3 crore in 20 years. If you invest in a safe option that would only give you 7%, you need to invest about Rs 57,000 per month in 20 years to build a pool of Rs 3 crore. When you had to account for inflation and taxes, your investments per month would increase further. 

Since you are a moderate investor, you should invest in multi-cap mutual funds instead of large-cap mutual funds.

For any clarifications/feedback on the topic, please contact the writer at komal.chawla@cleartax.in