The most important date in salaried professional’s financial life is 31st March. It is the day which drives us to hurry and save for tax deductions. Our research shows that lot of salaried professionals either under utilize tax incentives or over invest in Tax planning instruments. In both cases, you lose your hard earned money. Often we tend to buy products or make investments without doing the due diligence on our total tax structure. Having a tax plan in place by the start of financial year will help you make better decisions and even reduce the burden on financials during the end of financial year.
How to assess the investments to be made under section 80C :
Insurance for long has been the front runner whenever investments regarding tax savings are considered. Life Insurance is not an investment option but a financial tool that helps you protect the family from any unforeseen eventualities. Buying excessive insurance defying its motto leads to holding unnecessary products. Savings under section 80C can be broadly classified as: Investment based (PF, PPF, EPF, NSC, Fixed deposit, ELSS, RGESS) and Non investment based (principal repayment of home loan, tuition fee). Before making investments related to tax saving it is always important that the individuals must analyze their risk appetite and determine the percentage of debt and equity exposure they are comfortable with. Then they can match these percentages of debt and equity buy investing in the available tax saving investments.
Since the risk appetite, liquidity needs and current portfolio of every individual are different, making investments based on just returns is not advisable. If an individual is risk averse it is advisable to invest in government securities. For the risk averse investors PPF, EPF, VPF, NSC, Fixed Deposits are available options. For an individual with high risk tolerance can consider ELSS or Rajiv Gandhi Equity saving scheme. The investment instruments should be treated based on their merit rather than their previous returns. ELSS instruments for the past 5 years have not been productive in terms of the returns. But the historical returns of equities always show that equities have fetched good returns if they have a longtime investment horizon.
Written By Arthayantra
