How I invested my 10 lakhs salary to get the maximum return in 2023 ?

I’m working in an Indian startup and getting a salary of ₹10,00,000 annually. After all the deductions (PF and others), I’m getting an in-hand salary of ₹75,000 per month. Living in a metro city on your own can take a major portion of your salary on expenses, like accommodation, food, travelling, etc. Even if you will save a little, the real skill is to channelise those savings into various investments considering the inflation, as banks will give you about 3-4% interest on your saving account, and the rate of inflation is much higher. Working 9-5 (which typically becomes 8-7, considering travelling time) can make it very difficult to manage your investments as it requires time and attention. Apart from risk and return associated with various investment options, the choice of investment also depends on the tax regime chosen by you. Tax liability is one major concern, as in order to reduce your taxable income, you need to invest in some specific instruments. Income above Rs. 5 Lakh in the old tax regime and Rs. 7 Lakh in the new tax regime is exempted to pay any tax. Also, the new tax regime has a lower tax slab rate, but it eradicates most of the deductions available in the old tax regime.

The first step is to choose the tax regime that best suits you. Earlier, when I was getting a lower salary (₹7,00,000 per annum), I chose New Tax Regime because I wasn’t liable to pay any tax on that salary under the new regime and also, I was free to invest my savings (hardly any) where ever I wanted. But now, when I’m getting a salary of ₹10,00,000 per year, I had a very important choice to make regarding the tax regime between new and old. If I would have continued with the new regime, I would have availed the benefit of lower tax slab rates, but I had to compromise with the option of having various deductions and exemptions available to reduce the taxable income. So I changed to the old tax regime. Despite higher tax slab rates, if anyone wants to claim various exemptions and deductions that can reduce their taxable income, choosing the old tax regime is better. The old tax regime gave me options majorly under sections 80c, 80d, and 80e, as well as under section 24. Apart from this, I got an exemption on the amount of house rent paid by me.

The most important part was to choose the option I wanted to invest in under Section 80c. A maximum deduction of ₹1,50,000 can be claimed under this section. Apart from the various options available under this, these were my most preferable ones:

1. ELSS: Equity Linked Savings Scheme (ELSS) is a specially designed mutual fund scheme for individuals who want to save tax. It comes with a lock-in period of 3 years (the least lock-in period under section 80c), i.e., one can only withdraw their money after the lock-in period ends. In the normal run, it can give a return of up to 15 to 18%. It contains a considerable amount of risk because it doesn’t have fixed interest rates but is linked to the market’s performance.
2. EPF and PPF: Employee’s Provident Fund and Public Provident Fund are two important schemes regulated by the government to save tax and avail decent returns. A lock-in period of 5 years should be served for EPF and 15 years for PPF. For the financial year 2023-24, the pre-fixed rate of interest offered by the EPF scheme is 8.15%, and the current Public Provident Fund interest is 7.1%, which is updated by the government every financial year.
3. 5-Year Bank Fixed Deposit: Bank fixed deposit for 5 years is a good option for someone who doesn’t have a good hand in understanding financial jargon. Returns fluctuate between 6 to 7%, which can be availed under this varies from bank to bank.

Apart from these three, there are other options as well. After carefully examining all the possible options that I had, I choose to invest half of ₹1,50,000, i.e. ₹75,000, in Equity Linked Savings Scheme (ELSS) in which returns are higher, but the risk is greater, and for the other half I choose Employee’s Provident Fund (EPF) in which, return is lower, but it seemed safer option to me as there is no risk involved. For ELSS I had the option to invest through various investment platforms like Zerodha, Groww, etc., but I directly contacted my bank, where my salary was getting credited and purchased directly the best tax-saving mutual fund from there. For EPF, I directly used the EPFO website and invested the amount on my own.

After planning for all the deductions and exemptions that I will claim and setting aside the amount of tax that I will be paying, I assumed that I will end up with a saving of 3-4 Lakh at the end of the year. So I started to plan accordingly to channelise my savings into different investment options and look to create a diversified portfolio to reduce risk by benefitting maximum from the amount invested.

It is important to have some future financial goals to accelerate the saving and channelising the same to earn out of it and do our research before investing accordingly. I choose to consider 5 factors that are risk, return, tax implications, liquidity of capital, and time horizon for investing further. After researching for a while, I ended up with 3 options that seem good to me.

1. Investing directly in Stocks: Investing directly in stocks gave me the option to gain more returns while at the same time maintaining the liquidity of my funds. The cons include the possibility of negative returns when the market is down and continuous monitoring (which is difficult for someone doing 9-5). After comparing all the pros and cons, I decided to invest 25-30% of my savings into this. In the initial times, I was really worried about losing all my money, and eventually, I picked some wrong stocks but with time, I learned and tried to understand all the jargon, graphs, ratios, etc. Investing in the share market is risky, and there are no confirmed returns associated with it, but it can provide you an opportunity to gain more returns, as compared to other instruments.
2. Buy Mutual Funds: Mutual Funds have gained so much popularity these days because of their considerable rate of return so I decided to consider this an option. The returns depend on the market performance, but unlike directly investing in the share market, mutual funds are managed by some professional fund managers, which makes this a little safer option for me. I decided to invest 35-40% of my savings into this for returns ranging from 15% to 18%.
3. Open an RD Account: I found Recurring Deposits a good option for two reasons, i.e., fixed returns and risk-free. Interest rates on an RD account vary from 2.50%-8.50%. I’m a strong believer that some part of your savings should be invested in a risk-free instrument even if it gives less returns as compared to other risky options. I decided to invest 30-35% of my savings into this using monthly instalments.

I want to conclude that it is easy to keep your money idle in your bank accounts as it doesn’t require any effort, but it will only decrease the value of money you will have considering inflation. I realized it and tried to invest in all ways possible, but only after setting my future goals and doing all the research that was needed.