Invest for your goals, not to save tax
Written on Tuesday, November 3, 2015
By Shivkant Singh
It is seen that people often select tax saving instruments randomly without doing a proper comparison or research. They would go for PPF, insurance products or tax saving mutual fund schemes instead of realizing that there are better investment options available. Tax saving is important but don’t let it become your goal, rather aim for wealth creation. We are into the second half of financial year and this is the time we generally rush with our tax saving investments. Intention of this blog is to inform you about few tax saving investment options with good returns. Go through them and select what suits your need.
ELSS (Equity Linked Saving Schemes)
ELSS is a kind of mutual fund that invests in equity market and has the ability to deliver a good return of 12-16 percent. If we analyze the return based on inflation factor, it is almost 6-8 percent over inflation. It may argued that the returns in equity market are not guaranteed but past performances speak positive about the scheme and high growth can be achieved over a period of time. ELSS has a minimum lock-in period of 3 years, which is one of the lowest in tax saving investment category making it a favorable choice. One can invest up to 1.5 lacs in ELSS either in lump sum form or through SIP. Investing through SIP has the advantage of reducing volatility.
Return from ELSS fund is completely tax free.
NPS (National Pension System)
NPS is a pension scheme offered by Government of India where, you can regularly invest in this scheme and get a part in lump-sum at your retirement and it gives fixed monthly income for the lifetime. It has proved to be common man's doorway to getting pension benefits post retirement. It is a cost effective mode of planning for one's retirement, the cost structure is far more efficient when compared with charges levied by mutual funds or other investment options. Investment in NPS is highly safe and it contains very less amount of risk – these schemes were launched in May'09 and have yielded about 12% annualized return.
NPS provides tax benefits under section 80C of income tax.
ULIP (Unit Linked Insurance Plans)
ULIP is a kind of integrated insurance scheme that offers features of both insurance and investment. By investing in a ULIP, policyholder will procure units at their Net Asset Value (NAV) and make contributions towards other investment tools such as stocks, bonds and mutual funds. ULIPs encourage systematic investment. When you consider investment in small doses, over a time period it allows you to gain maximum benefits from rupee cost averaging and also saves your investment from market fluctuations.
ULIP investment qualifies for tax exemption under section 80 C of Income Tax Act and hence you can save up to Rs. 1,50,000.
Tax Free Bonds
As the name suggests, Tax-free Bonds are financial instruments which offer Tax relief to the investors by way of exemptions in Income Tax. These bonds have emerged as a popular choice among investors due to the taxation benefit it offers. Tax-free bonds are generally issued by government enterprises and have a fixed interest rate. As the proceeds from the bonds are invested in infrastructure projects, they have a long-term maturity of typically 10, 15 or 20 years.
These bonds are completely tax free but capital gains made on selling of tax-free bonds on stock exchanges are taxed.