Few investment tips for Defence officers

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There is a bunch los of information is available on investment. But we have no idea when to withdraw our funds in case we need them. Lack of clarity with respect to investment in house and property. Two major events warrant a change in financial planning for an officer. First is marriage, second is kids.  As opposed to employed civilians who contribute to Employees Provident Fund (EPFO), defence personnel contribute to a common pool called the Defence Services Officers Provident or DSOP. 

Serving defence officers save a percentage of their basic salary in the DSOP fund while it goes to the Armed Forces Personnel Provident (AFPP) fund for other ranks. These funds are one of the best ways to creating a sizeable corpus for goals, such as buying a house, and have the requisite liquidity during retirement years. As a youngster in the armed forces, this should be one’s starting point. Get a decent sum deducted each month and increase the subscription during a field tenure, since there is an additional allowance that is given while expenses are lower (other than what is splurged during leave).

Try to avoid withdrawing from it (unless essential) since that destroys compounding. Finally, since DSOP/AFPP subscription takes care of deduction u/s 80C, there is no need to invest in any instrument for tax-saving purposes.

Above this, Add some magic of equities, preferably not direct stocks. Create a portfolio of equity mutual funds for long-term goals, such as a child’s college education. While DSOP or AFPP adds the predictable compounding effect, equities play an important role too. Equity mutual funds are one of the best-suited products to invest regularly in for the long-term. Consider DSOP and equity mutual funds as the two wheels of a bike.

Keep your portfolio compact and clean. Avoid vehicle loans and multiple credit cards. Getting a loan and a credit card are the easiest for persons in government jobs. Don’t fall prey to them. While a home loan is fine, strive for a debt-free life.

Don’t buy property to save tax or just for rental income. Rental income is taxable. Make sure you can manage the property when you are posted somewhere else. On climbing ranks, increase your DSOP first and then your equity allocation.

The remote life and distant locations often keep men and women in uniform away from the mainstream. So, it’s important not to take decisions related to money matters in haste during short leaves. Do give any financial investment or property-related decision enough time and thought.

Buy gold in electronic form (Sovereign Gold Bonds or gold mutual funds). Keep your spouse involved in money matters. Do ensure that the nominee names are correct in all bank and investment-related documents.

Defence services offer a pension, which ensures a peaceful retired life (also takes care of inflation given the dearness allowance). However, many leave after 5, 10 or 14 years of service. If you are someone who plans to leave after a short service, the planning process has to be different.

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