The lives of defence personnel differ in many ways from that of civilians, so they need to keep certain things in mind when planning their finances. Given the frequent relocations often experienced with short notice, such individuals should consider long-term investments, such as systematic investment plans (SIPs) in mutual funds, which can operate on autopilot. Recognizing the limited availability of financial advice within the armed forces community, individuals in this group are encouraged to secure a reliable financial advisor early in their careers.
For defence personnel, children may not get settled when their commission gets over “So, plan for the long-term for children, house, and other important milestones early during the career and start saving. Also, build up good skills for civil employment for life after armed forces,” Col Sanjeev Govila (retd), certified financial planner, and CEO, Hum Fauji Initiatives, a financial advisory firm said.
As a general AIS (All India Services) guideline and also a code of good conduct followed in the services, defence personnel are not expected to speculate in stocks, shares, or other investments. However, this provision does not apply to occasional investments made through stockbrokers or other persons duly authorised or licenced under the relevant laws.
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We look at five investment options that defence personnel should consider.
Provident Fund: Provident fund (PF) is a good option since it gives the same rate of interest as the public provident fund (PPF), automatically gets deducted from the salary, and is tax-free up to Rs 5 lakh of investment per year. Withdrawal on requirement also has easy clauses.
Equity: While their in-service PF provides the debt allocation, they should invest in equity preferably through SIPs of mutual funds for their long-term goals.
Debt Funds: For those who are not comfortable with large exposure to equity due to their inherent risk profile, many categories of debt mutual funds like dynamic bond funds and corporate bond funds provide a very good long-term avenue for safe investing.
Own Home: “It should be done closer to retirement since a large number of armed forces personnel settle down at places different from their hometown or where they initially thought they would, on retirement. Money for this important goal can be accumulated through investments in the service,” Govila said.
Real estate other than this is not advocated since their constant movement, inability to monitor the investment and the on-ground market trends makes it a very difficult proposition for them.
Gold: 5-10 per cent of the portfolio can be allocated to gold through sovereign gold bonds (SGBs), gold ETFs, and gold MFs.
All armed forces personnel get a defined-benefit pension, the old-world pension which continues. National pension scheme (NPS) pension, the way it is structured now even after many improvements, does not compare well with this pension.
“Using NPS as an investment option by armed forces personnel, primarily for the small tax benefit and for the low expense ratio is like, in armed forces lingo, ‘using a khukri to fight a modern battle.’ NPS is not recommended for armed forces personnel,” Govila said.
Armed Forces personnel have peculiar service conditions and their financial lives unfold in different ways. However, the general financial planning and investment principles similarly apply to them. If planned carefully and executed diligently, there is no reason why they should not be able to lead as dignified a financial life as their physical life.