The Provident Fund (PF) is the bulwark of the retirement savings of the aver age salaried employee. But it can also be a great way to save tax. Although an individual's contribution to the PF is linked to the salary, one can increase the amount by opting for the Voluntary Provident Fund (VPF). Contributions to the VPF are eligible for the same tax benefits as the PF. The best thing is that the money automatically flows into the PF account every month.

The interest rate on the PF has been cut by 15 basis points to 8.65% this year. Even so, it remains well above the average consumer inflation rate (5.3%). So the real rate of return for the investor is fairly attractive at over 3%.

For investors not covered by the PF, the Public Provident Fund (PPF) can be a suitable alternative. The interest rate is lower at 8%, but remains ahead of inflation.

However, investors should be ready for rate cuts in the future. If the government had followed the Gopinath panel formula that links small savings interest rates with government bond yields, the PPF rate whould have been cut by almost 100 basis points to 7%. But analysts feel the government did not cut rates because it would have fuelled the simmering resentment against the demonetisation.

Even if the PPF rate is cut, it will give higher returns than bank deposits and corporate FDs. Banks have cut deposit rates to 7-7.5% and the interest is fully taxable. The post-tax return in the 30% tax bracket is barely 4.9-5.25%. The tax-free PPF continues to be the best debt instrument for risk-averse investors