When children we were always traditionally given gifts on some occasion or the other and presume that the best gift received was a small piggy bank. The idea to save starts when you are young. Being stingy and saving that little coin to buy something you wanted would ultimately go into that piggy bank. It’s great for a child to know its importance, but as an adult, does it solve a purpose?
Why should I save?
With the growing trends and inflation at the same time money earned is spent just not realizing how. The realization should be quick and realistic. Looking ahead of time and the necessity to save awakens a thought along with a question – “How to save and where to save?” Putting it in a bank is not all the thought evokes of whether this savings will earn me something more.
Sometimes we need to be prepared for unforeseen circumstances that may affect us and bring our ordinary lives to a sudden standstill. A major illness, a wedding, a birth or a death of a loved one comes at both emotional and monetary costs. It’s always good to be prepared for the worst as its close or the best.
How should I start saving?
Start saving in a tailored manner that will meet requirements. Can be saved in a savings account, in mutual funds or insurance where there is a tax return benefit. Look at what is the most beneficial type of investments options to maximize savings.
Must know terminology in investment plans
- Maximum maturity age: The age till one remains invested in a policy.
- Term of premium payment: In some it is the whole tenure of police and some terms chosen by the investor a fixed term of five years, seven years, ten years, etc.
- Sum assured guaranteed addition: Assured sum guaranteed by the insurance company to the investor as an addition to the matured amount.
- Risk cover or death benefits: On the demise of the policyholder, the assured maturity amount is handed over to the nominee.
- Maturity benefits: The maturity amount given to the investor on completion of the term period of the policy including guaranteed amount, additions and in some cases bonus.
- Tax benefit: Under Sec. 80C of the Income Tax Act, up to Rs.1.5 lakhs insurance premium benefit can be claimed per financial year.
What should one look at before making an investment?
It’s always necessary to be prepared and well read before making any investment. If one does not read through an investment carefully, it will be detrimental to that person itself.
Some elements to look at before making an investment include:
- Tax savings at their maximum
- Investments with minimum market risk
- An investment with a low price tag
- Double the amount of invested returns
What are the best tax saving investments?
The best tax saving investments that have all four of the best features and promote maximum tax saving are:
- Life insurance plans
- Health insurance schemes
- Equity linked ELSS mutual funds
- National pension schemes
- Public provident fund scheme
Most Tax efficient than any other investment such as fixed deposits, bonds etc., are the Mutual funds. Indexation benefits (tax should be paid on the real part of gain alone) are received only on long-term mutual fund investments. As compared to other types of investment there is no term period, no maturity period, no insurance benefits etc. there is just day-to-day growth on savings. This can be an additional thought of investment to insurance investments.
Tax saving plans and benefits
|Tax Saving Investment Plans||Tax Benefits Under Income Tax Act|
|Life insurance plans||Sections 80(C), 10 (D)|
|Health insurance schemes||Section 80 (D)|
|Equity linked ELSS mutual funds||Sections 80(C), 10 (D)|
|National pension schemes||Section 80 (CCD)|
|Public provident fund scheme||Section 80 (CCC)|
Why Tax Saving Investments in mutual funds?
- Tax benefits under the Act are up to Rs. 1.5 lakh
- Long-term capital gains are not taxed under the Act.
- Money invested continues to grow as savings, which is a lump sum for a rainy day.
- A three-year lock in period for all mutual funds.
- All year investment facilities
- Easy withdrawal options for emergencies
It’s easy to save on tax through tax saving investments like mutual funds. It helps to save money on a daily basis as you can invest your money throughout the year and use it later for emergencies. There are some plans that even start for as low as Rs. 30 per day. It’s necessary to make use of these plans and benefit from them.