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Rediff.com  » Getahead » ASK TAX GURU: 'Is PPF the best low-risk investment option?'

ASK TAX GURU: 'Is PPF the best low-risk investment option?'

By ANIL REGO
April 06, 2022 09:02 IST
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'In terms of guaranteed tax-free returns, do you think PPF is still the best option for non-employed investors?'

Illustration: Dominic Xavier/Rediff.com

Anil Rego, CEO, Right Horizons, answers your personal income tax queries.


Prem Soni: Shall appreciate your expert advice based on the following facts:

Am 59 years old & came back to India on 6th November ’20 after my stint with an MNC overseas, for 14 years & 9 months. What is going to be my status for the previous financial year viz. 2020-21 as well as current financial year i.e. 2021-22? All my overseas salary up to 5th of November ’20 were transferred to my NRE Rupee or US $ fixed deposits.

I do have some small income in the form of dividend on shares, interest on ordinary rupee FDs, house rent etc. Most probably, I will not be working abroad any more. What will be the tax treatment of my NRE deposits which are going to mature in future or have been renewed after my return to India in November’20? As per my standard instructions to the banks, the same are being auto-renewed on due dates.

I would like to know if there are any specific investment products other than NRE/RFC FDs, for the NRIs whose status has changed in the current fiscal year or is going to change in near future.

Most all my savings are in INR only, but classified under NRE deposits.

Anil Rego: The status of FY2020-21 would be NRI and the status in FY2021-22 would be RNOR (Resident but not ordinarily resident). So you need to convert the NRE to resident account immediately after returning to India. If you fail to convert your NRE account within 3 months of the return, it will be considered as a violation of Foreign Exchange Management Act (FEMA) and attract a penalty.

After you return to India, any interest earned on NRE account will be taxable. You can opt to transfer your funds from NRE account to RFC account upon return

Though there are no specific products for returning NRIs, there are a whole range of investment options available for you apart from Bank Deposits. The most common are mutual funds, bonds, stocks, insurance, etc. You can choose to invest based on factors that suit you including risk, return, liquidity, etc. Options like PPF that are not available for NRIs become available when your status changes to Resident Indian.

Prem Soni: Are there products currently available where an investor could invest lump sum & get the returns on monthly basis akin to pension? As per my understanding such monthly receipts are going to be subject to tax as per prevailing laws.

Anil Rego: There are different products which offers fixed returns monthly, quarterly, annually etc. Insurance is prominent which provides immediate annuity (that is start paying soon after investments) till lifetime on monthly basis. Some Bonds/Company Deposits also allow a monthly interest payment. Mutual funds are another option to evaluate as one can use a systematic withdrawal plan as well.

Prem Soni: Is it advisable to put some funds in Sovereign Gold Bonds or you would recommend sustained investment through online buying/selling of gold whenever rates are favourable? In spite of 2.5% interest applicable on the Sovereign Bonds, I guess funds getting blocked for eight years weigh against this option. What are the tax implications of investment in Sovereign Gold Bonds?

Anil Rego

  • Sovereign Gold Bond scheme are an option to diversify your portfolio. However, on account of your age, you need to evaluate whether it is suitable to you, due to long tenure of the bond/low liquidity on the exchange.
  • Interest income is taxable as per your tax slab. On redemption, the capital gains tax applicable to an individual is exempted. Also, one can avail of indexation in case of long-term capital gains.

Prem Soni: In terms of guaranteed tax-free returns, do you think PPF is still the best option for non-employed investors even though the prevailing ceiling is still very low viz. Rs. 1.50 Lacs?

Anil Rego: PPF provides one of the best returns among the lowest risk options. However, keep in mind the long tenure of 15 years considering your age. Partial liquidity would be available only after 5 years.

Prem Soni: Which are the organisations that provide portfolio management services with some indicative assured returns? Am ok to park a portion of my savings in a portfolio of good scrips.

Anil Rego: There are a lot of organisations that provide portfolio management services (PMS) including our own. The company you choose would be based on various factors like long term performance, risk  Equities are a high risk, high return option. Thus, the regulator also does not allow PMS companies to provide an assured return. If someone offers you an assured return, you need to be wary of the same.

We suggest that you avail the services of an advisor who can help deliver good risk adjusted returns on your portfolio. Based on your portfolio size, you can diversify across a range of investment options. Considering you are retired; I would suggest a low to moderate risk level.

Prem Soni: Actually I would like to have a judicious mix of investments worth Rs. 50 Lacs-Rs 100 Lacs for getting tax free returns, if possible.

I seek your advice from the point of view of tax & other aspects.

Insurance coverage is not what I am interested in, but if the product offers insurance coverage also as an added benefit, it should be ok. 

Anil Rego: I would suggest you look at a combination of Bonds (including tax free bonds), Small Savings Schemes, Debt MFs, Conservative Hybrid Funds like Dynamic Asset Allocation/ Balanced Advantage Funds and Large Cap Funds. Track your overall equity exposure and we suggest you restrict it between 25-35% based on your risk appetite and size of capital. As mentioned above, it maybe a good idea to consult an advisor to assist you in the process.


Do you have any personal income tax query? Please mail us at getahead@rediff.co.in with the subject line 'Ask Anil' and Anil Rego will answer all your tax queries.

Anil Rego is the founder and CEO of Right Horizons, an investment advisory and wealth management firm that focuses on providing financial solutions that are specific to customer needs.

You can find more of Mr Rego's answers here.

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