If you are running a business the first place you would want to invest is the business itself. However, in the long run, you will be in a better financial position if you build financial assets separate from your business. Investments like unit-linked insurance plans are easy make and monitor,
Type of Investments
Before we get into the specific investments, there are few rules of investment you should keep in mind. Following these rules does not have any direct impact on how your investments perform, but they affect your peace of mind.
Following these rules will keep you not only satisfied with your investments but also make you financially independent from your economic activity.
Fortunately, we have many investment options available to meet all these objectives. Considering you would want different options for frequency of investment in a year, the best of these investments are as follows:
Unit Linked Investment Plans (ULIPs)
These versatile investment plans are the best mix of all the investment options and the most tax-efficient too. You can invest in equity, debt or balanced funds or a mix of all under the same plan. ULPs also enable you to enjoy 80C deductions for invested money and deductions on maturity proceeds and withdrawals as well.
Thus, investing in ULIP could mean tax-free money all around. Also, ULIPs have an inbuilt life cover as well which adds to your family’s financial security. Talking about financial security, ULIPs are the only investment which can ensure that your family can meet their financial goal even after your early demise.
A small example is the Invest 4G ULIP plan from Canara HSBC OBC Life. you can ‘insure’ your goal with this plan.
Assume that you wanted to accumulate Rs 50 lakh in the next 20 years. You estimate that you can achieve this by investing Rs 1 lakhs every year. You start with Invest 4G ULIP plan with a life cover of Rs. 10 lakhs. Unfortunately, you meet with a fatal accident in the 8th policy year, after investing just Rs 8 lakhs.
The insurance policy will pay Rs. 10 lakhs (life cover) to your family immediately. But, the plan will continue, as the insurer will invest the remaining premiums as they are due. At the time of intended maturity your family receives the total accumulated fund value from the policy; i.e. about Rs. 50 lakhs.
Thus, you can use ULIP plans to invest in the important financial goals of your family, such as child’s education and marriage.
ULIPs as Retirement Investment
If used correctly ULIPs could be the best investment for your retirement. This is the only investment which allows you to generate tax-free pension after retirement. But, to achieve that, you need to start long before you want to retire.
To use a ULIP plan like Invest 4G for your retirement’s pension asset, you need to take care of the following:
Even when you have retired, you can withdraw from other retirement investments, such as pension plans and such and keep adding funds to your ULIP plan.
Although pension is taxable, you can still withdraw up to Rs 5 lakhs a year with zero tax liability from pension funds. You can also withdraw an additional Rs 1.5 lakhs and invest it in the ULIP plan.
As you claim this additional withdrawal as a deduction under section 80C, you turn your taxable income into a non-taxable one. You can simultaneously keep withdrawing funds from ULIP to meet your needs.
National Pension Scheme (NPS)
National Pension Scheme has two investment options tier-1 and tier-2. You can open a tier-2 account once you have a tier-1 account. Tier-1 NPS account is specifically for retirement and remains locked until you reach 60.
Public Provident Fund (PPF)
PPF is one of the safest long-term investment options. With tax-free entry and exit, this is one of the safe investments where you can invest completely tax-free. The plan has a lock-in period of five years for partial withdrawals and 15 years for maturity.
You can extend the account in batches of 5 years after maturity. The only limitation PPF account has is that you cannot invest more than Rs 1.5 lakhs a year. the maximum investment limit of PPF follows the 80C deduction limit closely. So, it may increase in future if 80C limit moves.
Apart from that PPF investments are perhaps the best when it comes to investing safely for your family. Especially if you are self-employed. PPF account cannot be attached by your lenders and thus, it is a must-have account for every business owner.
Invest for Family’s Financial Security
Although there are many investment options in the market, these three investments are uniquely predisposed for the self-employed. Whether it is taxability, investment tenure, financial safety or your retirement, these investments can fulfil all the roles.
However, while you are investing remember the rules of investment for long-term peace of mind. Invest in the financial security of your family and to achieve the freedom from dependence on your business after retirement.
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