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6 Best Investment Options for Self Employed Individuals

Updated on :  

08 min read.

You may find self-employed individuals struggling to generate regular income as compared to people with a fixed salary. Moreover, self-employed individuals do not enjoy the security of the employee provident fund (EPF). You have many self-employed people struggling to meet daily expenses post-retirement. 

You will have to invest in suitable financial products to achieve your short, medium and long-term financial goals if you have irregular income. Moreover, you will need an emergency fund to tide over a financial crisis. 

You could consider these six investment options if you are a self-employed individual.

Public Provident Fund

The public provident fund (PPF) is a small savings scheme that the government regulates. It is one of the safest fixed-income investments and enjoys the sovereign backing of the government. You could invest in the PPF if you seek a higher return than bank FDs and other fixed-income investments. 

You have PPF currently offering an interest rate of 7.1% for the quarter ending on March 31, 2021. It has a 15-year lock-in and is a suitable option for long-term financial goals such as retirement. 

You can avail of a loan against the PPF balance from the third year to the sixth year after opening your PPF account, subject to certain conditions. It helps you during a financial crisis. 

You may invest in PPF to enjoy a tax deduction of up to a maximum of Rs 1.5 lakh per year under Section 80C of the IT Act. Moreover, the interest earned and maturity proceeds are tax exempt. 

National Savings Certificate

You may invest in the National Savings Certificate (NSC), a fixed-income investment at any India post office. It is a popular small-saving scheme that offers guaranteed returns. It is a lock-in period of five years. You can avail of a loan against NSC to meet a financial emergency. 

You could invest in NSC if you want a higher return as compared to bank fixed deposits. It currently offers 6.8% for the quarter ending on March 31, 2021. Moreover, it provides a tax deduction of up to Rs 1.5 lakh per financial year under Section 80C. 

Bank Fixed Deposits

You could invest in a fixed deposit with a bank or NBFC. It is a safe investment that protects your capital and offers an assured interest rate for a particular period. You would find your investment amount locked at a specified interest rate, and it’s unaffected by market fluctuations. 

You can take a loan against bank FD at a lower interest rate than personal loans and credit cards. You also enjoy a tax deduction of up to Rs 1.5 lakh per financial year on your investment in a tax saving FD. However, tax saving FD has a lock-in period of five years.

Mutual Funds

You can invest in mutual funds to attain financial goals based on your risk appetite. It puts money in equity, debt, the mix of both stocks and fixed income, gold and real estate according to the fund’s investment objectives. 

You have different types of mutual funds, and you can choose a suitable investment to match your investment needs and risk profile. For example, you can invest in mid-cap funds that put the bulk of the assets in mid-cap companies’ stocks if you are an aggressive investor. 

You also have several options in debt funds for conservative and aggressive investors. You have conservative investors choosing debt funds of shorter duration and high credit quality. However, aggressive investors choose debt funds with higher duration or lower credit quality to increase returns but at a greater risk. 

You could also choose hybrid funds that invest in a mix of equity and debt instruments. It serves as a cushion against adverse stock market movements and can enhance your portfolio’s overall returns.

You could consider investing in ELSS, a type of tax-saving mutual fund to qualify for the Section 80C tax deduction. It has the shortest lock-in period of only three years compared to other tax-saving investments under Section 80C. 

Post Office Saving Schemes

The Post Office offers several schemes for different investors. You could consider post office investment avenues that offer a higher return than bank FDs backed by sovereign guarantee. 

You could choose from the post office savings account, post office time deposit account, 5-year post office recurring deposit account and the post office monthly income scheme. Moreover, the post office time deposit (POTD) qualifies for the tax deduction under Section 80C. 

National Pension System

You have the National Pension System (NPS) as a government-sponsored pension scheme. It helps self-occupied individuals invest for retirement. You can regularly contribute towards the NPS at any time in the financial year. It is open for all Indian citizens between the age of 18 to 60 years. 

Your investment is spread across stocks, fixed income instruments and government securities depending on the options you choose. You also enjoy tax deductions under Section 80C and Section 80CCD(1B) on your investment in the NPS

You can withdraw 60% of the corpus tax-free at the age of 60 years. However, you will have to invest the remaining 40% in an annuity plan compulsorily. You will have to choose the annuity service provider (ASP) to purchase the annuity plan. 

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