Q. I returned to India recently and have a lump sum amount. I’m 39 years old and I want to build a pension corpus in 10-15 years. Kindly suggest (tax-free) medium to low risk or capital guarantee lump sum schemes.

K. Srivatsan

A. This may sound a bit cliche but it still holds water —do not put all eggs in one basket; diversification is the key. ‘Tax-free’ component has three angles viz. 1) Whether the invested sum is eligible for deduction under Sec 80C of the Income Tax Act? 2) Periodical interest received is exempt from tax or not? 3) Whether the maturity proceeds are tax-free? If yes for all three, then they fall under Exempt-Exempt-Exempt (EEE) category.

Full-fledged EEE schemes are Public Provident Fund (PPF), Employee Provident Fund (EPF), Voluntary Provident Fund (VPF up to ₹2,50,000 per year) and Sukanya Samriddhi Yojana.

EPF and VPF schemes are not applicable for your corpus. In PPF, you can invest a maximum of ₹1,50,000 per year.

If you have a daughter (not applicable for son), you can invest in Sukanya Samriddhi Yojana (up to ₹1,50,000 per year per girl child). Now, let’s take a deeper look into the three ‘tax-free’ angles. Section 80C deduction doesn’t fit the bill as, we hope, you are not interested in yearly claim.

Tax-free bonds

If you want a tick in the second and third angle, there are a few low-risk tax-free bonds from public sector companies such as National Highways Authority of India, Indian Railway Finance Corporation and Rural Electrification Corporation. Interest on these bonds are tax-free and invite no capital gain tax as capital appreciation is nil; no tax for maturity proceeds as only principal amount would be returned. But wait, the devil is in the detail.

These bonds offer interest rates somewhere around 5.4% to 5.7% and getting a tad above is difficult. So, investing in such bonds might throw a spanner in the works of building a pension corpus within the time-span of 10-15 years.

Coming to the third angle — at time of maturity, only principal is tax-free, but accumulated interest is taxable. For instance, India Post schemes — National Saving Certificates (7.7%), Kisan Vikas Patras (7.5%), 5-year Time Deposit (7.5%) — interest is compounded annually. There is no maximum limit for investing in them. It also offers a Monthly Income Scheme (MIS) with 7.4% interest per annum. You can invest (lump sum) a maximum of ₹9 lakh in a single account or ₹15 lakh jointly, for which you would receive a monthly income of ₹5,550 or ₹9,250 respectively. In these schemes, interest received is added to taxable income for the year and is taxable as per slab.

Other ‘tax exempt’ schemes come with ‘ifs and buts.’ Say for instance, you can invest lump sum amount in ELSS mutual fund schemes, but capital gain tax is exempt only up to ₹1,00,000 per year. Further, there are several capital-guaranteed Unit Linked Insurance Plans (ULIPs) that provide interest rates somewhere around 6% to 8% per annum, but with a catch.

In the Union Budget 2021, Ms. Sitharaman proposed to allow tax exemption for maturity proceeds of ULIPs carrying an annual premium of only up to ₹2.5 lakh, for policies taken on or after February 1, 2021. If the premium amount exceeds the threshold, then the maturity proceeds are taxable.

Physical/digital gold

So, let’s face it. There is no ‘one-size-fits-all’ solution. The larger you diversify, the lower would be your risk. Invest at least 25-30% of the corpus in physical gold or digital gold exchange traded funds. Since you are considerably young and have a time horizon of 10 to 15 years, you can have 20-30% exposure to equities also. Since you are risk-averse, do not chase penny or small-cap stocks. Invest only in bluechips with a good track record or in companies listed on indices such as Nifty 50, Nifty 100 or Sensex.

Investing in equities is risky. Building a pension corpus is not that easy with low risk come low returns. So, take the help of a professional SEBI-registered Investment Advisor.

(The writer is an NISM & CRISIL-certified wealth manager)

Published on March 31, 2025