Economists define the Middle Class as those whose annual household income is two-thirds to double the national median. India’s average per capita income in the financial year 2018.19 was Rs 1,26,000/-. Considering a family size of four, all families with household income of Rs. 4 to 10 lakh count as middle class people in India.

Middle class has always been considered as the backbone of our economy and plays a crucial role in India’s growth and development. Middle class resiliently works towards having a safe and secure future. 

Investments become an extremely crucial aspect of life for the middle class people. Whether it is planning for the short term goal of buying a car or saving for the long term goals of buying a house or children’s education and retirement corpus. Financial planning plays a critical role in their lives.  
To meet their financial goals, middle class people need investment options that provide tax benefits as well as good returns.

Exhaust the investment limit under Section 80-C for tax saving

In order to minimize the income tax on their income, middle class people need to fully utilize the Rs 1,50,000 investment limit allowed under Section 80-C. Permissible investments are PPF, 5 year bank fixed deposits, post office saving schemes and NPS.

Interest earned on 5 year bank fixed deposits, post office saving schemes are taxable. However, interest earned on PPF is tax free. PPF is a 15 year scheme and the current rate of interest is 8%. Considering the attractive & tax free return on PPF, this investment option should utilized to meet long term goals like children’s education etc.

Utilize additional limit for NPS underSection 80-CCD for tax saving 

There is a separate investment limit of Rs 50,000 allowed under section 80-CCD for investment in NPS. Returns on NPS are not guaranteed and will depend on the fund performance. On reaching the retirement age of 58, one can withdraw 40% of accumulated balance in the NPS account as a lump sum which is tax free. Balance 60% of corpus amount is to be used to purchase an Annuity Policy from any Life Insurance Company.

Such Annuity Policy takes care of retirement security by providing regular pensions to the person and later to spouse. After fully availing the above tax saving investment avenues, middle class people should concentrate on wealth creation by investing their balance savings in the following investment options.

SIP investments in equities or mutual funds for wealth creation

Equities and equity mutual funds give inflating beating returns and help to create wealth. During the last 40 years, Sensex has given a compounded annual return (CAGR) of 16%, though Sensex returns may be erratic in some individual years. SIP investments help to capture long term high returns envisaged in stock markets.

Invest in Gold via Gold ETF’s

Gold is a popular investment product for all Indians. Instead of buying physical gold, they can invest through Gold ETFs or Gold Deposit Schemes.

Invest part of retirement corpus in Senior Citizens’ Savings Scheme (SCSS)

This is a government guaranteed savings scheme with a tenure of 5 years. Senior citizens aged 60 years or above can invest in this saving scheme. Present interest rate on SCSS is very attractive at 8.7%.