The Funda of Investing-4 steps to achieve financial freedom

Today we talk about how to prioritize your goals and organise your finances so that you can meet your targets in the easiest possible manner.

Check out these four steps that will help you budget your finances in the best possible way.

Identify Goals and Prioritize- The No 1 rule for financial planning

The goals can vary from higher education to marriage to buying a car. Once you have jotted down the list, prioritize and elimination the avoidable ones e.g. buying a car can be delayed by a few years if you are looking forward to getting married in the near term.

Create an Emergency Fund and Cover the Risks :

A typical emergency fund usually caters to situations like loss of a job. It should be sufficient to last around 6 months. So if you spend 15000 Rs a month, keep aside Rs 90000 for this fund. Apart from this cover the risks – risk against accident, disability, ill-health and death. This is important so as to take care of you and your dependents, in case, God forbid, something happens to you. You can cover yourself through an appropriate mix of term plans, mediclaim and health insurance.

Budgeting Finances – Create Goal-Based Funds :

A goal-based fund would look like –

Saving 2,00,000 in 2 yrs for a car
Saving 8,00,000 in 3 years for marriage, etc
Calculate the monthly savings accordingly. So instead of spending and then saving, first save and then spend.

Organize your Finances :

Cut out on leisurely expenses. It doesn’t mean cutting out on your leisure, but it simply means finding alternate sources of entertaining yourself. Instead of watching movies in a multiplex, opt for smaller, cheaper theatres, or better watch them on a rented DVD. Ladies can cut down their visits to beauty parlours and opt for self – do packages.

ULIP Investment vs Mutual Fund, Term Insurance combo

A friend of mine asked me to review a ULIP. My first question to him was why ULIP? Why not go for a combination of Mutual fund and Term Insurance? Yes, you heard me correct. It’s always better to separate insurance from investment. Hence investing in a mutual fund, term insurance combo can be more useful than ULIP investment. I did some googling and here are my findings. In the illustration below, I am comparing a ULIP with tax saving mutual funds.

ULIP from ABC Company Ltd.

Age (Yrs) Term of
policy (Yrs)
Premium paying
term (Yrs)
Sum Assured
(Rs)
Premium
(Rs)
Maturity
amount (Rs)
30 10 10 10,00,000 1,00,000 15,20,375

Assumed returns rate: 10%
The figures used in the illustration above are based on that of an existing life insurance company.

The returns could vary across life insurance companies.

The scenario above is that an individual, aged 30, decides to invest a sum of 10 lakhs for ten years. He chooses to invest in a ULIP, the premium for which comes out to be one lakhs annually. Assuming 10% returns annually, his corpus stands at 15,20,375 after ten years. However, this illustration is misleading. That is because the returns calculated by life insurance companies are often on that portion of the premium (i.e. premium paid – charges, charges include mortality charges, administration charges and fund management charges etc. and can vary from 5 to 40%), that is invested after deducting all the expenses. Therefore, the net return on Rs 100,000 works out to approximately 7.50 per cent only.

Now suppose that the individual, instead of investing in a ULIP, buys term insurance and invests surplus in tax saving mutual funds.

Term plan from XYZ Company Ltd.

Age (Yrs) Sum Assured
(Rs)
Premium
(Rs)
Tenure
(Yrs)
Death benefit
(Rs)
30 15,00,000 3,600 10 15,00,000

The figures used in the illustration above are based on that of an existing life insurance company.

The returns could vary across life insurance companies.

A term plan of 15 lakhs costs 3600 Rs annually. Assuming the remaining amount of Rs 96,400 is invested in a Systematic Investment Plan, the maturity amount after 10 yrs is 15,34,993 (Assuming returns of 9%). We can see that the maturity value is still more than that of a ULIP.

Moreover, the best part about keeping one’s investment needs and insurance needs apart is that both work towards their respective goals separately. Therefore, in case of an eventuality, the individual’s nominees would stand to get not only the sum assured from the term plan (i.e. Rs 15,00,000) but also the amount that has been invested in a tax-saving fund.

Easiest Way to Calculate Your Retirement Corpus

This is the easiest way to calculate your retirement corpus (without the use of an excel sheet or a financial calculator). You just need to open calculator on your Mobile to try this out. Before we start, please make a note of 4 important things that we need to make this work –

1. Your monthly expenses (e.g. Rs. 50,000)

2. Your current age (e.g. 36 years)

3. Your retirement age (e.g. 60 years)

4. Your life expectancy (e.g. 85 years) (approx. age that you believe you will die – consider 85 as the minimum age for calculations)

Let’s begin the simple math –

Difference between your retirement age and current age – 24 Years (60-36)

Please note that your expenses will get doubled every 12 years if the inflation rate is at 6%.

Your current monthly expenses of Rs. 50,000 will be quadrupled (4 times) after 24 years which would amount to Rs. 2 lakhs per month (aggregate monthly expenses required at the time of retirement)

The next step would be to calculate the difference between your life expectancy and retirement age – 85-60= 25 years

Now, multiply these 2 lakhs monthly expenses for the next 25 years

2 lakhs per month *12 = 24 lakhs per year

24 lakhs per year for 25 years – 600 lakhs or 6 crores
(assuming 6% inflation and 6% returns – 0% returns over inflation after retirement)

This would be your retirement corpus and this is as easy you can think of.

(If your spouse is younger than you, multiply the per annum expenses with age difference between two of you and add to the above corpus)

However, what if your assumed returns are more than inflation after retirement?

You will need to multiply the above corpus (6 crores) by

1. 0.9 if your returns are 1% more than inflation i.e. the inflation is at 6%, but the returns are at 7% (6 crores *0.9 = 5.40 crores)

2. 0.8 if the returns are 2% more than inflation i.e. inflation is at 6%, but the returns are at 8% (6 crores *0.8 = 4.80 crores)

3. 0.7 if the returns are 3% more than inflation i.e. inflation is at 6% and returns are at 9% (6 crores *0.7 = 4.20 crores)

My suggestion – Do not take more than 1% returns above inflation (to be on the safer side of calculation)

What happens in case the difference between your retirement age and your current age is not divisible by 12?

The simple solution would be to use fractions. Example – If my current age is 38 years and my monthly expenses are 50,000 – my expenses will get doubled by the age of 50 i.e. it will stand at 1 lakh per month. Now multiply this 1 lakh by 10 (difference between age 60 – 50) and divide it by 12. ((100000*10)/12 = 1,83,333). As such, 1.83 lakhs would be your average monthly expenses at the time of retirement.

What if I want to consider a different rate of inflation?

Use the formula of 72. Divide 72 with your proposed inflation rate and that would be the number of years when your monthly expenses get doubled.

When we considered the inflation rate at 6%, our monthly expenses were getting doubled in 12 years.

If we take inflation rate at 4%, the monthly expenses will get doubled in 18 years.

If you want to validate whether the amount is right or wrong, try this with the calculator that you trust.

I have not taken any taxes into consideration since it would make this calculation far more complicated.

Also, various insurance premiums such as health insurance and car insurance have been not taken into account, since that is something you can easily calculate.

The Indian Investors fascination with 1 Crore Term Insurance Cover

This is a rookie mistake that even the best investors make. We generally tend to believe that a 1 crore term insurance cover is sufficient.

Though there is a shift in the approach towards term insurance nowadays and people have started purchasing it. However, the dream figure for most of us seems to be stuck at 1 crore.

Let’s see what happens if I take a 1 crore term insurance cover.

Due to some unfortunate circumstances if I die tomorrow, how long do you think my family will be able to survive with 1 crore?

Monthly expenses – Rs. 40,000/- : The coverage amount of 1 crore will be sufficient for the next 21 years.

Monthly expenses – Rs. 50,000/- : The coverage amount of 1 crore will be sufficient for the next 17 years

Monthly expenses – Rs. 60,000/- : The coverage amount of 1 crore will be sufficient for the next 14 years.

In terms of calculations, I have done the most basic math by dividing 1 crore with my annual expenses.

I am presuming that my spouse will just keep this entire amount in FDs (No mutual funds, no stocks, or other forms of investments). This will be a zero per cent return assuming 6% inflation and 6% returns.

Most spouses may not be aware of the kind of investments made by their better half must be doing (leave about mutual funds, stocks or other investments) that is why FD.

This amount of 1 crore is only sufficient for the above-mentioned number of years if we do not consider any existing repayment of loan, goals towards child education and marriage.

In case you have any additional assets, you can also check the additional years your family can survive with those assets by dividing the total asset value by your annual expenses.

If you have more liabilities than assets, the above-mentioned years for survival will reduce further.

With all these permutations and combinations,

Do you still think that 1 crore term insurance cover is enough?

Dilemma of taking term insurance till age 60/70/85/100 years

Generally, term insurance cover is supposed to be taken till the age of 60 because 60 is considered to be the age of retirement in India. It is also presumed that by the time one turns 60, the person would have fulfilled all his responsibilities, saved enough to lead a contended retired life and acquired the necessary amount of wealth that he/she can pass on to his family as an inheritance.

Is there any harm if one decides to give out an additional inheritance to their family by taking term insurance till the age of 70/85/100 (as everyone seems to be sure that he/she will die by the age of 100), that too by paying some extra premium? This is a normal thought process when one thinks of buying term insurance beyond the age of 60.

But does a person actually leave an inheritance through term insurance coverage beyond age 60?

Suppose, I am 36 years old and take term insurance of 1 crore till the age of 100, instead of taking it till the age of 60.

In case of my untimely death before the age of 60, I am just going to pay an additional premium only as I have taken the policy till age 100. (Premiums of term policies till age 100 are much higher than till age 60)

If I die at the age of 70, the value of 1 crore would be 14 lakhs, with the assumption of inflation rate at 6%. (The value of 1 crore would be around 14 lakhs after 34 years in today’s cost. That is the impact of inflation).

However, if I die at the age of 80, the value of 1 crore would be reduced to only 8 lakhs.

If I die at the age of 90, the value of 1 crore would be reduced to just 4.3 lakhs.

In reality, this is the only additional inheritance amount that you may be leaving behind for your family (Not the 1 Crore amount in today`s value) if you intend to extend your coverage beyond 60.

This is with the baseline assumption that there would be an inflation of 6%. In such cases, the value of money would be exactly half every 12 years.

Personal Accidental Insurance: Critical For All

Talk to any financial planner and you are made to realize that your insurance (including personal accidental insurance) need is much higher than what you are currently covered for and the first question that comes to mind is the exorbitant cost of the high insurance cover you need. On talking in detail you understand that a good part of the insurance need can be fulfilled by personal accidental insurance at a cost which is just 2% to 5% of the premium to be paid for a normal endowment type life insurance policy. To understand it with an illustration.

  Endowment Policy Accident Policy
Coverage 5 lakhs 5 lakhs
Tenor 20 years 20 years
Premium 25000 p.a 560 p.a.
The personal accidental insurance premium is just 2.25% of the endowment policy premium

While both are not fully comparable, accidental insurance always comes handy when the high-risk cover is required and the cost involved under normal life insurance is exorbitant.

Why accidental insurance?

The probability of a young person dying of natural reasons is much lower as compared to the probability of accidental death. So if we have to buy insurance for a 30-year-old person earning 5 Lakh rupees a year, his insurance need would be close to One Crore Rupees which is certainly going to cost a lot of money, say around 4-5 Lakh rupees a year.

A good strategy would be to buy a combination of Term Insurance and personal accidental Insurance and a little bit of Endowment Insurance. Such a combo should cost around Rs. 50,000 which can be further brought down if the endowment is eliminated altogether till the income levels rise further. By removing endowment at this juncture, the cost will come close to Rs. 16-17,000, which is very much an affordable figure for a person who is earning five lakh a year.

Types of personal accidental Insurance:

  Death Permanent Disability Temporary Disability Hospitalisation Max coverage Cost Coverage Cost
Death only cover       10 times annual income Low 10 lacs 500
Death & Permanent Disability     10 times annual income Twice of 1    
Death, Permanent & Temporary disability   2-5 times annual income 1.5 times 2    
Hospitalization       25% of type 3 cover 20%-25% of cost of 3    

How to Buy Personal Accidental Insurance:

  • Available with almost all general insurance companies
  • Available without any medical tests of any kind
  • Amount of insurance is restricted and is linked to the annual income of the person.
  • Salaried people have to provide their salary slip and others are expected to provide their income tax returns by the help of which the insurance company can decide the amount of insurance cover to give.
  • In most of the companies, there is also a provision of a cumulative bonus for every claim-free year.

Personal accidental insurance is the cheapest and smartest way of filling the insurance gap especially for the young who are aware of the importance of insurance and whose salaries are still not very high.

The 5 Most Recommended Solutions for Student Debt

The college has become a heavy burden. Nationwide earnings estimate that university students are graduating with a diploma and $20,000 in student loans. As soon as payments start, college students are in subject with the complex situation that hundreds of dollars a month is a must. Thankfully, there are a variety of solutions to help handle student debt.

Payment Plan

An affordable payment plan ought to be the first choice. Many lenders are prepared to figure out an affordable payment plan choice according to your income. This may consist of stretching the term of the loan. By stretching the term of the loan, you will probably end up having to pay much more interest over time, but a minimum of it will save you from defaulting in your plan. This can be an easy and affordable choice available to most graduates having a substantial amount of student debt.

   Defer the loan payments

One choice for coping with student debt is deferment. By deferring the loan payments, you can delay payments till in the future when you’re in a much better budget to payout your loan. You have to obtain a loan deferment so be ready to clarify your circumstances to your loan provider. Deferments are most frequently used in situations, including joblessness and difficulty. You may also be eligible to have your payments delayed if you are planning back to school.

Other unique conditions might be eligible you for a moratorium, but it’s dependent on the discernment of the loan provider. Should you be interested in going after this method, speak to your loan provider and get to know more about this.

  Tuition Reimbursement

Tuition Reimbursement is really a well-liked solution to fix student debt. Some businesses are prepared to help you to repay your financial obligations to acquire a collection period of time of employment. This option would be generally in the form of an agreement for service. This option would be most typical in federal government jobs and with non-profit businesses. To provide you with a concept of how tuition reimbursement functions, presume you graduate with $20,000 in student debt.

Following graduation, you’re contacted with a government recruiter. Among your worker advantages are allowances that go in the direction of payment of the student debt after five years with the organization. If you are looking at college tuition reimbursement, consult with a supervisor in the human resource department of the company or possible employer.

  Debt Forgiveness

Debt forgiveness may be the termination of a portion or maybe your whole loan. This method isn’t effortlessly given to graduates. Unique conditions should affect your circumstances that you should be eligible. Among the conditions and terms for financial debt forgiveness is a loan that is government-supported instead of a personal bank loan. Debt forgiveness may also be given as an exchange of public services. This is also true for government jobs with a demand for workers. This may consist of military service, teaching, volunteering, or your federal government position for that state.

Debt Consolidation

Debt consolidation is definitely a choice if you want to cut your monthly payments. It is really a choice for those who have a number of financial loans with various lenders. Debt consolidation is comparable to refinancing all of your loans via one lender. By combining your financial debt via one lender, you simply need to bother about producing one payment per month. For example, presume that you’re producing loan payments to 3 lenders, which indicates that you’ll have to pay 3 interest rates.

By combining your financial loans, you’re basically rolling all your financial debt into one loan and decreasing your interest rate along the way. The advantages for this are you receive a lower interest rate and also the ease of only having to make one payment per month.

Top 5 Crucial Tips for Minimizing Student Loan Debt

Student loan debt is on top of the mind for every student attending a university.  College is usually an expensive endeavor due to the high cost of tuition, books, dorms, food and other extra fees. The issue with the high price is the fact that all students end up getting jumbo student loans to cover all the expenses. After getting away from university, the debt remains, and it is frequently challenging to repay totally. Thankfully, you’ll be able to reduce your school loan debts.

Scholarships and Grants:

Scholarships and grants ought to always be among the first actions to paying for your university expenses. As scholarships and grants are free money you can use for the degree, you won’t ever have to pay it back. Scholarships and grants can be found through the school, from private businesses and private organizations. They’ve unique needs, like a particular area of study or perhaps a specific GPA, but when you obtain the money, it reduces the amount of debt you are taking out.

Savings:

Open a university savings account early and set apart some money, especially for university. Beginning as soon as possible is perfect. Still, even though you start in high school, you could have sufficient money reserve to cover part of your university expenses without touching debts. A 529 saving account is an ideal chance to tear down your taxes and conserve extra money while investing that money. With the addition of some investing to the savings, you will end up getting more money for university accessible. If you choose to make use of a 529 university savings account, you will have to state it on your FAFSA application.

Work During University:

Working part-time as you go to university will help you handle expenses while you will go to college. While it may not supply sufficient money to cover everything, it can help you pay for some of the expenses like books and a part of tuition.

Limit Student Loan Debt:

Take out only the amount you require after exhausting all other sources of money to cover the school. This can reduce the amount of money you are taking out in loans by stopping you against taking out extra money. Maintain the number of student loans you are taking out to the lowest possible amount as opposed to the highest.

Consolidate Student Loan Debts – Top 5 Things That will Help

  • Most people that enrol in higher education turn out to obtain college loans. Probably it’s time to consolidate school loans? A consolidation loan can help decrease your interest rate and incorporate your payments into only one or two payments.
  • Why should you consolidate school loans? Lower interest rate. Your monthly payments will likely be under what you at the moment are. This you will save a lot of cash eventually.
  • Federal School Loans must be combined on their own from private loans. You may be receiving a dramatically lower interest rate. Monthly payments could be diminished by around 53%. Finances will likely be made easier with only one particular federal payment each month. Payment will likely be distributed over a more extended period and monthly payments will probably be lower.
  • Who’s Qualified to apply for a Federal Combination School Loan? In case you have more than $20,000 in federal loans, are certainly not in default, you’ll probably meet the requirements. Better still, you won’t need to get employed to consolidate; it is not necessary to have a co-signer and his like.
  • If you’re going to consolidate school loans ( both federal and private ), contemplate consolidating your federal loans first. Obtaining significantly less wide-open lines of credit will improve your credit score and assist you in getting a better rate on private loans.

Make Loan Payments:

While you go to university, you are eligible to create loan payments on whatever student loans you have taken out. By paying as much as possible before getting away from university, when your degree is complete, you’ll have repaid an adequate amount of the loans to possess a smaller debt.

Conclusion:

Limiting your student loan debt is manageable. You need to steer clear of getting more than you will have to pay for university and employ other available options simultaneously.

Is NPS a good tax saving investment?

If you are thinking of investing in NPS as a tax saving investment, you must reconsider it. As NPS mainly aims to provide retirement benefit, it might not act solely as a tax saving investment. There are some regulations for getting optimum tax-saving benefits from the NPS account. Being low to moderate risk invest option, NPS allows you to invest without any worries. Here is a discussion on tax-saving with an NPS account.

Who should opt for opening an NPS account?

  • NPS aims for retirement income. And it has such a financial construction that it ensures a considerable income after sixty years of age.
  • You can start with NPS savings at the age of eighteen. And you will have to continue your savings till the age of sixty years. You can extend it up to the age of seventy years too.
  • Keep it in mind that this is a very long procedure of investment. Suppose you will start to invest from the age of twenty-five. You will continue till sixty years that means thirty-five years for completion of the investment. So, make sure that you can continue and wait for such a long term plan.

Tax benefits expected from NPS

  • The tax saving you get with an NPS account is mainly Income Tax benefits. Here is an outline of the same.
  • You can get a considerable Income Tax deduction with NPS as the Tax saving comes under the section of 80CCD (1B). Investment of Rs. 50,000 in Tier I NPS account per financial year will allow you to get a tax deduction.
  • There is an additional Rs.50, 000 tax deduction excluding Rs. 1.5 lakh tax benefit. Tax saving comes under section 80 CCD (1) of the Income Tax Act.
  • Keep it noted that the total amount of tax deduction is under sections 80C, 80CC, and 80 CCD (1) cannot be more than Rs. 1.5lakh.
  • The deduction of tax under section 80 CCD (1) is for both salaried and non-salaried people.
  • Non-salaried individuals get 20% of the gross income of a financial year for tax deduction under section 80 CCD (1).
  • For salaried individuals, the tax deduction is 10% of the salary of a year with an NPS account.
  • The total amount of tax deduction is maximum Rs. 2 lakh for an individual. The tax deduction is Rs. 1.5 lakh under section 80 CCD (1). And Rs. 50,000 under section 80 CCD (1B).
  • NPS corporate model allows the employee to deposit an amount directly. It is also possible via the employer.
  • Under section 80 CCD (2) employee gets an additional tax saving. The maximum deduction of tax benefit under section 80 CCD (2) is not more than 10% of the employee’s salary of a year. The contribution to an NPS account from a salary is considered excluding the allowances.

The downside of choosing NPS as a tax saving investment option

Liquidity

Being a retirement aimed investment scheme, NPS focuses on a long term period. The withdrawal of money during the investment period is quite inflexible. The liquidity of money is almost unavailable. You can get withdrawals after certain years of investment only for a child’s education, marriage, or education-related purposes.

Taxable annuity

The annuity you will get after completion of the investment is taxable. It means a retiree’s income will include this pension from NPS. And it is a liability for the person to pay the tax for the same.

Taxable principal

A certain portion of the principal is also taxable with NPS savings. The annuity is counted under the individual’s capital or principal.

Corpus is not tax-free

When you withdraw sixty percent of the corpus, forty percent will be there in NPS as a balance for giving annuity. The mature corpus is not entirely tax-free. Forty percent of the total corpus can get tax exemption. The remaining twenty percent is taxable value.

Concluding remarks

Before opening an NPS account, always judge the pros and cons. It is a long-term investment plan. So, you must understand the implications of the investment scheme. If you decide to open an NPS account only for availing tax benefits, it cannot be suggested. There are many investment schemes like PPF, VPF, and ELSS, and so on for getting tax deduction benefits. NPS aims to fulfill retirement income. If you need a retirement investment strategy along with a tax deduction benefit, you can open an NPS account.

NPS Vs Mutual Funds After You’ve Exhausted 80C

Which is more beneficial, investing in NPS and get 50k deduction or investing in the mutual fund even if exhausted 80C in India?

Investment in India is sometimes confusing if you depend only on tax deduction benefits. NPS (National Pension Scheme) has a long term investment structure. This financial scheme has an aim to fulfill the retirement income of a salaried or non-salaried individual. Mutual funds allow saving less and earning more in India.

Most of the mutual funds offer a higher interest rate in comparison to NPS. Now, the question is investing in NPS and get 50k additional tax deduction is beneficial or not. Here you will get guidance to choose the best for you between NPS and mutual fund even if exhausted 80C in India.

NPS or mutual fund even if exhausted 80C

NPS

An individual will get an Income Tax deduction with NPS as the Tax benefit comes under the section of 80CCD (1B).  Investment of Rs. Fifty thousand in Tier I of an NPS account per financial year will give a significant tax deduction. NPS offers an additional Rs.50, 000 tax deduction excluding Rs. 1.5 lakh tax benefit. It is under the section 80 CCD (1) of the Income Tax Act.

If your savings already have exhausted 80C of Income Tax Act, it means you already availed Rs.1.5 lakh of tax benefits per annum. So, if you would like to find out a good option after this tax saving, NPS is a preferable choice. It will allow getting an extra tax benefit of Rs.50,000 per financial year.

Remarks on NPS investment

NPS is a retirement-oriented savings scheme. It aims to provide annuity after the age of 60. But, always keep it mind that you will have to save for an extensive period to avail of annuities. And till the day you provide investment in the NPS account, you will get a tax deduction for Rs.1.5 lakh and an additional deduction of Rs.50,000.  So, it means if your 80C of the Income Tax Act is exhausted, you are still getting an additional deduction of Rs.50,000. But NPS has some liquidity issues if you try to withdraw your savings. You can only withdraw for certain issues like a child’s education, house building, and marriage, etc.

Mutual Funds

Not all mutual funds will offer tax savings benefits. If you need to invest in mutual funds only for tax deductions, you can choose the Equity Linked Savings Scheme (ELSS). It will help you to claim up to Rs.1.5 lakh of tax deduction, which comes under Section 80C of Income Tax Act. But if your claim of 80C is already exhausted, ELSS cannot help you to get more. So, it is remarkable for mutual funds that these cannot function better than NPS for a tax deduction.

Remarks on mutual funds

The returns of mutual fund equities are always higher than NPS. So, if you prefer the return amount as a profit of the investment, mutual funds are the best option. If your savings do not need the aid of 80C anymore for tax benefits, mutual funds are the top choices for grabbing profits.

Which one is for you?

If you are no longer interested in the benefits of 80C, invest in mutual funds.  The equities in mutual funds are the next generation of the Indian economy.  The market-linked units provide maximum benefits in case of returns. And if you are worried about the extra tax deduction of 50K, you can open an NPS. But in the long run, NPS will not provide you liquidity benefits. Even after the age of 60 years, you will have to leave 40% of the corpus for getting annuity or pension income. And this income comes under taxation.

It is better not to think about only 80C and tax deduction while choosing a savings scheme. And mutual funds are a gateway for instant benefit without the hazard of the longer lock-in period.