Tax Saving: Don't just depend on insurance

Written on Thursday, September 24, 2015
By Vishwajeet Parashar- Senior VP & Group Head - Marketing, Bajaj Capital Ltd.

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Tax saving is one of the primary concerns for every individual whether salaried or self-employed. Traditionally we have given preference to insurance policies as it offers dual benefit of coverage and tax saving but what if you don't have any dependents and you are still in your early stage of career? Do you still need to depend on insurance? I would say- you actually don't need it at this stage of your life. Then why not invest that amount in some other investment options that would save tax and create wealth over a period of time. I am not saying insurance in not necessary, it is, but probably this is not the right time. Although insurance policies are eligible for tax benefits under section 80C but they are perhaps not the apt way of tax saving.

Is there a better way?
Yes, there are other investment options such as ELSS and PPF. Investing in ELSS funds would give you necessary equity exposure while PPF will offer steadiness to your investment portfolio. Let's assume that you choose to invest 4000 in ELSS and 3000 in PPF every month, it will significantly cut down your tax by 8500.

Equity Linked Saving Schemes (ELSS)
There are ways ELSS will prove to be beneficial. Since ELSS funds invest in equity related instruments, these schemes would help you to grow your money when the stock market grows over a period of time. By investing in these funds you are eligible for tax exemption up to Rs. 1,50,000. Since these funds have a lock in period of 3 years, this would result in a forced saving and would help you grow your money considering market fluctuations.

Before investing in ELSS you need to take care of few things:

-Consider investing in top ranked funds that have rated by CRISIL or Value Search

-Invest in funds that have an asset under management of at least 100 Crores

-Look for the fund performance of last 3-5 years

Risk: Since ELSS invests 65% in equity, there is some element of risk attached to it.

Public Provident Fund (PPF)
PPF is one of the most efficient tax saving investment option. You can save up to 1.5 Lakhs under 80c by investing in these funds. Any individual can invest in PPF and also you can open account on behalf of minors. But you cannot open more than one account in your name. While NRIs are not allowed to open an account, if an individual becomes an NRI while the account is in operation, then he or she can continue to invest in the PPF account, on a non-repatriation basis. The minimum amount of investment in a PPF account is Rs 500 per annum. In case of a minor's account, the investment in the minor's and guardian's account together cannot exceed Rs 1, 50,000 per annum. Deposits can be made in a maximum of 12 installments in a year.

Before investing in PPF you need to take care of few things:

-PPF has a lock in period of 15 years

-Interest rate can vary and is compounded annually

-If you have not made any deposit in a year in PPF, the account gets discontinued

-The account has a maturity of 15 years but in reality, it runs for a 16-year period

Risk: There is no associated risk with investment in PPF. 

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