However, you shouldn’t rush in simply to save tax. The investment you make should help your money grow too. So, don’t let the pressure to save tax get to you. Take time out to do ample research and then invest in a tax-saving fund. Also, invest in the fund that helps your money grow too. This is how you can go about doing it:
Consider your portfolio balance
Before you decide to invest in debt-oriented instruments such as Public Provident Fund (PPF) or National Savings Certificate (NSC) to claim a deduction under Section 80C of Income Tax Act, pause to think whether your portfolio is already too skewed towards debt. While debt investments are advisable because they provide stable returns, you need to find a healthy balance between equity and debt.
Why ELSS can benefit
Equity investments have the potential to provide the best inflation-adjusted returns over long-term. But many first-time investors shy away from equities for the lack of knowledge or time. Also, they think of equity to be volatile. Though equity can be risky, they have historically provided high returns in the long run. To put it simply, they are risky over short-term, but usually perform well when given time.
This is where investing in equity-linked savings scheme (ELSS) can come in handy. These equity-oriented schemes can build your wealth. They also take care of your tax planning needs, which means that the returns you get are tax-free under Section 80C of the Income Tax Act.
They also have a lock-in period of three years, which means you are giving your equity investment time to grow. As a result, these schemes generally tend to give you higher returns when compared to debt investments.
ELSS is also time-consuming and money-wise. They save you time because you don’t have to go through reams of research reports to pick the best company stock. ELSS, a type of mutual fund, is managed by fund houses. They have fund managers who have the experience to choose company stocks for you. The only research you need to do is to pick the right ELSS fund.
ELSS funds save you money because, thanks to systematic investment plan (SIP), you can invest as little as Rs 500 every month. Otherwise, buying company stocks individually can be a very expensive affair.
The other benefit is that you can buy ELSS online. You don’t have to approach an agent. You don’t have to physically visit a fund house. All you need to do is to do some research before investing in an ELSS.
Look beyond tax-saving
As mentioned earlier, a tax-saving fund’s top-most priority should be about increasing your money. Tax-saving should be a secondary thing. This is where ELSS can score above other tax-saving funds.
These funds not only help you save tax, they generally provide higher returns as compared to Public Provident Fund and National Savings Certificate. Therefore, you need to think about your future. You shouldn’t get lost in the rush to save tax only. You may save tax now but you may fritter away the chance to get wealthier in the years to come.
You can also think of opting for a medical insurance. This can safeguard your finance in case of a medical emergency. A medical cover can also help you save tax. You can claim tax-deduction on the premium of the medical insurance that you pay under Section 80D of the Income Tax Act.
To sum up
There is more to tax planning than randomly picking instruments to save tax. Though you are in a race against time at this juncture, you need to keep calm and invest in the right tax saving investments.