*DSOPF or PF- Defense Services Officers Provident Fund or Provident Fund
When you Invest, you should not invest in products but in who you are and what do you want from that investment. Numerous financial products are available and every product meets different wealth needs and that is why Investocafe stresses on holistic personalized portfoilo curation and wealth management.
One rule or context changes and it impacts your portfolio. Investocafe's strong association with Army fraternity requires us to address the query raised by them, where they are facing confusion over one such rule change, which is about capping of DSOPF/PF. Yearly tax free contribution to PF is capped at Rs. 5 Lakhs, that is, returns earned for the sum over Rs. 5 lakhs are taxed according to each person's tax bracket. With effect from November 2022, Salary disbursing authorities (PCDAO(Pune)) have stopped taking the DSOP/PF amount beyond Rs.5 Lakhs.
What does it mean for you?
That means as your contribution hits Rs. 5 Lakhs ceiling, paying authorities will not accept any further contributions for that Financial Year. So, contributing more than Rs.5 Lakhs annualy (or Rs.41667 per month) is not as lucrative as it was. It also translates into analyzing the impact and finding a better avenue for the money, which you will be saving after hitting the Rs.5 Lakhs cap.
What to do now?
We always want to maximize returns with lowest possible risk. When Investocafe chalks out a plan for you, we take care of your goals and ensure the balance amongst the trio of Safety-Liquidity-Growth.
So, here in this case, you should not withdraw money from existing DSOP/PF corpus and should utilize it to maximum limit as it continues to earn 7.1% Tax free returns and scores big on Safety. It keeps you afloat in terms of Growth aspect. However, it is important now to utilize money which now is in your hands but you can not put that in DSOPF/PF.
Let’s find better avenues!
You have to analyze any financial product based on your current portfolio and future direction of your life situations.
If you are not insured or you do find the amount insufficient, consider buying insurance but if your financial risks are covered, do NOT buy insurance policies as they are not investment products. If you are very risk averse and would not want your money to beat inflation, fixed income products are for you. But fairly, an investment instrument should provide adequate Liquidity and Growth to beat inflation (returns more than 7-8%).
As Safety aspect has already been covered in DSOP/PF, you can invest the saved amount into equity or equity mutual funds which provide better growth, liquidity and fair safety in terms of regulation. Market instruments have inherent volatility risk and when we do analyse your full portfolio and risk appetite, the decision can be taken more confidently and it becomes more fruitful for you.
Have a look at historical returns (*indicative), though historical returns may not be repeated in future but they provide a guide.
You can calculate returns based on the amount or reverse calculate based on the goal at Calculate Returns here!
Choose what is best for you and you can book one ‘no fee’ wealth management consultation with Investocafe’s certified advisor too.
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