Tax Saving!!! Probably the biggest worry of all Indians. Even being the biggest worry, somehow we deal with it in a haphazard manner. We think of it only when HR asks for tax declaration (for salaried) or on 30th March, and then we go and invest in an insurance policy which we actually don’t need or invest in any tax saver fund. So we not only postpone it till year end but also invest without thinking.
Let’s take a look at few tax savings investments available:
Mutual Funds: The best option available as on date. You can choose the funds as per your requirement, very easy to invest, no long term commitment to pay every year, with lock in of just 3 years and the capability to give superior returns compared to other available options. Remember to choose the growth option and invest in funds with good track record. Only one Caveat- Don’t go by last one year performance. Choose a right fund with a long track record.
Insurance: If you are buying it for tax saving you are doing a big mistake. Insurance has to be bought only for protecting your family for any unexpected events and not for saving tax. Buy a term plan from any of the company you are comfortable with. It will not make a difference which company you chose till the time you are giving correct details. Insurance is a commitment and should be done after doing some research.
National Pension Scheme: NPS became attractive as it allows an additional deduction of 50K. Couple of point to ponder – First, maturity amount is taxable and second 40% of the corpus must be put in Annuity. Income from annuity is also taxed at normal rate. So choose wisely.
PPF and VPF: Decent option. If you are looking for fixed returns then probable this is a good option to look at. Return on PPF is known in advance. It again needs a long term commitment but loan available incase required. Return on VPF is same as that of EPF, so again the returns are guaranteed and know in advance. You can invest as much as you want. Choose any of them if you are ok with long term lock-in. Ensure its good from overall perspective of asset allocation. Don’t invest if you already have investment in fixed deposit or Insurance.
Sukanya Samruddhi Scheme: Good initiative by govt for girl child. Interest rates are decided by central govt every year. Interest earned is tax free. Max deposit amount is 1.5 lakhs. Not very attractive from financial planning perspective as the returns are less( 9.1% was for last year, when your avg inflation at 7%), is ill-liquid and only 50% can be withdrawn when your daughter is 18 years old. Rest when she attains 21 years of age.
Bank FD: Again not a very good option as the lock in is for 5 years, offers very low rate of return and interest is taxable. Don’t know what purpose does it serves. Invest at your own risk.
Pension Plans: First they have very high expense ratio which makes them unattractive and second 66% of the corpus has to be invested in annuity. So no flexibility at the hands of investor.
busyinvestor 