7 Investment Options For Self Employed Individuals

08 March 2023
6 min read
7 Investment Options For Self Employed Individuals
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“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” – Robert Kiyosaki.

The above quote serves as a reality check, an inspiration, and a lesson for people from all strata of society. The reality check is that even if a person earns big, he should not be complacent, as their revenue stream may dry up.

The inspiration is to attain a position and create a system where wealth multiplies itself without intervention.

The lesson here is to understand that all things may end, and one should prepare for the worst and place themselves to face such a situation comfortably.

With evolving times, the asset classes have evolved, with many conceptualized in the last decade, which was unheard of before.

Self-employed people may need help to create consistent income compared to people with fixed wages.

Furthermore, the employee provident fund (EPF) does not cover self-employed individuals. As a result, many self-employed people struggle to meet their everyday costs after retirement.

If you have inconsistent income, you must invest in appropriate financial products to meet your short, medium, and long-term financial goals.

Furthermore, an emergency fund will be required to get you through a financial disaster.

7 Investment Choices For Self-Employed Individuals

Here are some of the valuable investment options for self-employed individuals-

1) Public Provident Fund

The public provident fund (PPF) is a small savings scheme regulated by the government. It is one of the safest fixed-income investments, with the government's sovereign guarantee.

So if you want a more significant return than bank FDs and other fixed-income investments, you could invest in the PPF.

You presently have a PPF with an interest rate of 7.1% for the quarter ending March 31, 2022. It has a 15-year lock-in period and is a good option for long-term financial goals like retirement.

Subject to specific circumstances, you can borrow against your PPF balance from the third to the sixth year after starting your PPF account. It comes in handy amid a financial crisis.

You can invest in PPF to get a tax deduction of up to Rs 1.5 lakh per year under Section 80C of the Income Tax Act. Furthermore, the interest and maturity revenues are tax-free.

2) National Savings Certificate

You can invest in the National Savings Certificate (NSC), a fixed-income investment, at any India post office.

It is a popular small-savings plan with guaranteed returns. It has a five-year lock-in period. You can take out a loan on your NSC to meet a financial emergency.

If you want a more significant return than bank fixed deposits, you could invest in NSC. It is presently offering 6.8% through 2022. Furthermore, Section 80C allows for a tax deduction of up to Rs 1.5 lakh per fiscal year.

3) Bank Fixed Deposits

This is the safest bet. Money invested in Fixed Deposits is assured of returning to the hands of the investor, but, at the same time, they provide the stipulated returns as well.

Individuals who do not have a great deal of risk-taking capacity and are okay with lower returns over time can look at this.

Again, when one invests in a fixed deposit, he cannot withdraw it till maturity. Therefore, less liquidity is available if we invest in a fixed deposit.

However, self-employed individuals can consider this option if they have money in hand that they only need after some time. But again, in this case, liquid mutual funds would be a better option.

A loan against a bank FD has a lower interest rate than personal loans and credit cards.

You can also claim a tax deduction of up to Rs 1.5 lakh per fiscal year for investing in a tax-saving FD. However, tax-saving FDs have a five-year lock-in term.

4) Mutual Funds

Mutual Funds are one of those investment options suitable for all types of investors.

Depending on your risk tolerance, you can invest in mutual funds to achieve your financial goals. It invests in equities, debt, a mix of stocks and fixed income, gold, and real estate based on the fund's investment objectives.

Many investors prefer them because they wouldn't have to spend their efforts researching a particular stock. For them, it is better to rely on experts who do the same day in and day out. 

And while they are safer than direct stocks. They give much more returns than government instruments like fixed deposits and PPF.

Again, the sheer number of mutual funds in the market will leave the investor needing clarification about which fund to invest in.

You can select the best one for your financial needs and risk profile. If you are an ambitious investor, you can, for example, invest in mid-cap funds that invest most of their assets in the stocks of mid-cap firms.

Debt funds also provide various options for both conservative and aggressive investors. Conservative investors prefer debt funds with short-term bonds and strong credit quality.

5) National Pension Scheme (NPS)

The National Pension Scheme (NPS) is a retirement plan available to Indian citizens (both residents and non-residents) who want to deposit to their retirement accounts monthly.

Furthermore, it is a long-term investment strategy that provides market-based returns.

NPS users can regularly contribute to the scheme until retirement age. Upon retirement, the investor may withdraw a portion of the funds in a lump amount. The remainder must be spent on an annuity plan.

The following are some reasons why NPS is a good alternative for self-employed folks-

  • Regular Income: NPS is an ideal retirement option for investors seeking a steady income stream during retirement.

  • Tax Advantages: Under Section 80C of the Income Tax Act of 1961, NPS deposits up to INR 1,50,000 per year are untaxed. Furthermore, both the gains and the maturity amount are tax-free.

  • Automated Risk Reduction: The NPS system has a risk reduction mechanism that ensures that your equity exposure is automatically reduced as you approach retirement.

    The equity part is lowered dynamically, and the corpus is directed to safer schemes.

6) Stocks

The stock market is where countless people have made their fortunes. Yet, at the same time, countless have also drowned their futures here.

Millions engage in investment in securities of companies listed on recognized stock exchanges. However, to gain from this mechanism, one needs to have patience and understand that a stock market is where an investor will get various options to choose from.

Let me tell you this; not everyone is Warren Buffet. If you plan to invest in the stock market, know that the risk is high, and there is no guarantee of stable returns.

7) Insurance

Being self-employed excludes you from the benefits of the company insurance plan and the employee provident fund scheme. As a result, as a self-employed individual, you must take care of your insurance requirements.

It would help if you considered insurance for yourself and your dependents. It would help if you got both life and medical insurance. These are the most fundamental insurance policies to consider.

The following are some of the benefits of insurance for self-employed people:

  • Emergencies: Unexpected life events can harm your physical and financial well-being. As a result, having insurance to protect yourself in such a case is essential.

  • Security for Dependants: Insurance is a protection you can buy for your dependants. In the event of the insurer's untimely demise, the insurance can deliver the necessary financial support.

Conclusion

Self-employed individuals have a variety of asset classes to choose from.

They should decide to invest in that asset class that meets their goals and simultaneously takes care of the concern of liquidity and risk. A risk-averse investor will avoid investing in a risky investment option.

Also, one should consider diversifying the portfolio into different asset classes.

Happy Investing!

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