Waiting for last minute investments to save tax ?

Waiting for last minute investments to save tax ?

Here is the ending of financial year month of March where you can take your worst financial mistakes as investors rush to make tax ­saving investments. ELSS funds are top of the ranking of best tax­ saving options earlier this year. However, though financial planners recommend systematic investing, less than 20% of the total inflows into ELSS funds come through the SIP route.

Traditional life insurance plans don’t yield more than 5­6% returns, yet sell like hot cakes in March. When it comes to the PPF, even young taxpayers don’t mind locking up their money for the long term to earn modest returns. How can taxpayers avoid such mistakes? ELSS funds are equity schemes that help create wealth in the long term. The category has generated 20.2% annualised returns in the past three years and 16.4% in the past five years. But one must invest through monthly SIPs, not put a huge amount at one go. This is especially true in the current situation when the markets are at high levels. If you intend to invest Rs 50,000 to ­60,000 under Sec 80C before 31 March, we would recommend that you put only Rs 15,000­ to 20,000 in ELSS and the rest in a safer option such as PPF or NSCs. You can invest more in the ELSS fund in the new financial year, possibly through monthly SIPs. Taxpayers should note that every investment option plays a certain role in the portfolio. They should choose investments that fill gaps in their portfolios. Invest in ELSS funds if you are looking for equity exposure. Also, choose an ELSS fund that matches your risk appetite. Funds with a larger exposure to small and mid­cap stocks may be more volatile than funds that have lined their portfolio with large­cap stocks. Most importantly, the three­year lock­in period should not be construed as the holding period for an ELSS fund. Holding for longer periods could give better returns.

Similarly, the PPF is a good option for long­term savings. Though the PPF should be part of the debt portfolio, younger people should not over­invest in this option. In most cases, the monthly contribution to the Provident Fund is more than sufficient to build up the debt portion of an individual’s investment portfolio. Adding the PPF could skew the asset allocation and drag down the overall returns.

MATCH INVESTMENTS WITH NEEDS

Public Provident Fund

Tenure: 15 years
Returns: 8%
Purpose in portfolio: Long­term savings. Corpus is tax free.

Sukanya Samriddhi Yojana

Tenure: Till girl turns 18
Returns: 8.5%
Purpose in portfolio: Longterm wealth creation. Corpus tax free.

Insurance Plans

Tenure Policy term
Returns: 5­6%
Purpose in portfolio: Insurance cover. Corpus is tax free.

Senior Citizens’ Saving Scheme

Tenure: 5 years
Returns: 8.5%
Purpose in portfolio: Regular income in retirement. Income taxable.

National Pension System

Tenure: Till retirement
Returns: Market­linked
Purpose in portfolio: Long ­term savings. 40% corpus tax free.

ELSS Funds

Tenure: 3 years
Returns: Market­linked
Purpose in portfolio: Long­term wealth creation. Corpus tax free.

NSCs and Bank FDs

Tenure: 5 years
Returns: 7.5­8 %
Purpose in portfolio: Longterm wealth creation. Corpus tax free.

These savings and expenses are also eligible for deduction under Sec 80C:

Mandatory contribution to Employee Provident Fund, NPS
Tuition fees of up to two children
Principal portion of home loan EMI

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