Last-minute investments go haywire more often than not, as your decisions are solely driven by tax-saving motives, overlooking factors that are essential to making investment decision.
The period of January-February-March is when most people scratch their heads over tax planning. The biggest proof of that is the insurance purchases going up during that time of the year. What it results in are hasty decisions, inadequate insurance coverage and engaging in low-return investments. Last-minute investments go haywire more often than not, as your decisions are solely driven by tax-saving motives, overlooking factors that are essential to making investment decisions.
If you don’t want to take your hard-earned money for granted, then plan your investments early, so that you could choose your avenues smartly, basis your risk appetite, investment goals and investment horizon. An ideal asset will allow you to save tax effectively and earn return suitable to meet your goals.
Start early to run your research and compare before you zero in on the product that suits you best. This time around, you may also be expecting a year-end/annual bonus, so make use of all the surplus money you have in hand.
Let’s look at some of the attractive investment choices you can consider for early tax planning.
Avenues you may consider
To start with, you must identify your goals, risk appetite and return expectations. Pick the right mix of equity and debt-oriented tax saving instruments for effective tax planning.
ELSS: Equity linked savings scheme (ELSS) can offer you the best of both worlds – high return and the opportunity to save tax. You can invest in lump sum or through the SIP mode. And you will be eligible for a tax deduction benefit of up to Rs 1.5 lakh under Section 80 (C). However, there is a three-year lock-in period associated. So, make sure you are invested for the long term to avail the benefits.
ULIP: This one is a combination of investment and insurance. Unit linked insurance plan (ULIP) offers high yield from investment exposure to the equity market and insurance benefits as well. ULIPs also come with tax benefits upon attaining maturity. However, you are locked in for a period of five years when investing in ULIPs.
Small Savings: Apart from these, there are other low-risk government-backed schemes such as Sukanya Samriddhi Yojna (if you have a girl child), PPF, NSC, etc. that can help you save up to Rs 1.5 lakh under Section 80 (C).
NPS: A retirement-focused investment scheme, NPS allows you to avail an additional deduction benefit of Rs 50,000 under Section 80 (CCD). This deduction comes over and above the ceiling of Rs 1.5 lakh under Section 80 (C). Anyone between the age of 18 and 60 can join NPS. However, the corpus attains maturity only at the age of 60. The maturity corpus which used to be tax-free up to 40% earlier has now been made completely tax-free.
(The writer is CEO, BankBazaar.com)