Most salaried professionals are living on ‘pay cheque to pay cheque basis’ rather than looking at the right investment avenues to meet their financial objectives in the longer term.
A study conducted across sectors revealed that majority of salaried professionals look at insurance policy not just as a risk cover, but as a tax-saving instrument. They prefer investments in hybrid products such as United Linked Insurance Plans (ULIPs), amid concerns that despite promising both insurance and investment, they do not do justice to both.
The study, involving over 2,000 professionals from entry stage to senior levels, revealed that 77 per cent of them relied on insurance as their primary choice for tax saving under Section 80-C of the Income Tax Act, while those going for investments in equity-linked savings schemes are a minority at 6.86 per cent. Employees’ Provident Fund constitutes the best saving option with close to 8 per cent, 4.3 per cent of employees opted for fixed deposits, and another 3.45 per cent invested in National Savings Certificates.
This is despite the introduction of the Rajiv Gandhi Equity Savings Scheme (RGESS) by the Union Government last year. “The scheme has been launched to inculcate investment as a habit for the uninitiated. But given the procedures involved like opening of demat account, the scheme is yet to take off, with low number of subscriptions even a year after its launch,” Ernst & Young partner (tax and regulatory services) Jayesh Sanghvi told The Hindu .
According to him, preference for investment in insurance policies, particularly those offered by public sector companies, is borne out of the perceived safety in the form of the government’s involvement in those firms. Post office savings constitute the next avenue, thanks to the reach of the department.
Haribhakti & Co associate director Nori Shyam Sunder sees a change in the perception of professionals towards investing in equities, but it will depend on market conditions, too, to a large extent.
Artha Yantra, a city-based personal finances advisory firm which conducted the study, found equity aversion on the part of most working professionals. “A staggering number of people prefer insurance policies as tax saving instruments rather than just a security cover,” Artha Yantra CEO Nitin B. Vyakaranam said.
According to Mr. Vyakaranam, another major concern in investments is the timing during which they are made. Experts advise that investments should be planned early and executed evenly throughout the financial year. In actual practice, majority focus on their investment and savings plans towards the end of the financial year, especially between January and March that turns out to be cumbersome for employees who will be forced to buy products without verifying the pros and cons.
The study indicated that 28.85 per cent of entry-level professionals (employees with earnings between Rs. 2 lakh and Rs. 5 lakh a year and with less than five years experience) do not plan for their taxes/savings at all, while close to 50 per cent make their tax and savings plans between October and March.