NPS: The New Pension Scheme (NPS) is gaining in popularity. And one wishing to have exposure in equities can use this scheme. Yet, it is not very aggressive. NPS allows fund managers to invest only in index (50 per cent is the limit) funds. So, it is safer than direct equities from an investment perspective. It is the cheapest way to get exposure in equities as well.
Last year, NPS delivered an impressive average of 9.33 per cent. According to Piyush Seth of Plan Invest Advisors, those who fall in the highest tax bracket can afford to invest in mutual funds (other than ELSS) and stocks, as there is no long-term capital gains tax if held for over a year.
FD or Post Office schemes: These are a debt option to save taxes. The good part about these schemes is guaranteed return, compared to equity products. At the same time, they come with lock-in periods, at times longer. For instance, the most popular tax-saving option, PPF, comes with a minimum lock-in of six years, NSC has a lock-in of two years, and a tax-saving deposit locks your money for five years.
Analysts suggest PPF to most individuals because it helps save a good chunk for retirement. Besides, the interest income this avenue earns is completely tax-free. However, interest income from both NSC and a tax saving bank deposit is taxable at the slab rate. Since April 2012, PPF has been giving 8.8 per cent, while NSC gives 8.60 and the State Bank of India's tax-saving deposits offers 8.5 per cent for deposit maturing any time between five and 10 years.