Investment Planning for FY 2016-17
Cleartax.in 20-07-2016 10:48:17 AM
The new financial year is already underway but it is never too late to start. It doesn’t matter what age bracket you fall under, here is a 5-step guide for you to plan your tax-saving investments for FY2016-17.
- Start early
Planning your tax-saving investments allows you to take informed decisions. With time on hand, you can assess and review your investments and make changes if required. You can also rejig your tax-saving portfolio to meet your financial goals.
- Choose the right investments
Always understand and evaluate the tax-saving options you have. You can save up to Rs 1.5 lakh under Section 80C of the Indian Income Tax Laws (“ITL”) every year. The investments that you can make under Section 80C of ITL includes home loan repayments, school tuition fees, ELSS funds, PPF, NPS, tax-saving fixed deposits, etc. Another interesting avenue for investment is Life insurance. Life insurance has a sub-set of various products such as term plans, money back, whole life and ulips (unit linked insurance plans). Tax saving can be done by purchasing any of these plans as the premiums paid by you on these policies can be used for availing tax deduction upto overall limit as prescribed under Section 80C of ITL. Further, the lump sum payment received under life insurance policy on maturity, is exempt on meeting condition prescribed under section 10 (10D) of ITL. Out of these options, you should pick the investments that fit your risk profile and investment objectives.
- Diversify across investments
You should build a portfolio of different kinds of investments. You should have allocation to equity as well as debt. If you’re young and you can afford to take risks, then a major part of your portfolio should be in ELSS funds to allow your portfolio to earn inflation-beating returns. The remaining part of your tax-saving portfolio can be insurance plans and debt instruments like PPF or FDs.
- Keep a check on your investments
Fixed income investment options like PPF and FDs don’t need to be closely monitored. But your ELSS funds need a watchful eye. You don’t need to track your ELSS funds daily because they’re long-term investments that come with a lock-in of 3 years. But an annual check should be good enough. The good thing about ELSS funds is that you can stop investing in a fund even if you’re in the lock-in period. Hence, a fund that does poorly on a continuous basis can be replaced by another fund to make sure your portfolio returns don’t suffer.
- Don’t give up in between
It is important to start investing early and build a portfolio of tax-saving investments, but staying on course is equally important. Tax-saving investments are most beneficial when you keep investing regularly and stay invested for the long run. You might want to stop investing for a variety of reasons, but you should stay put and continue investing.
In a nutshell, get started, keep investing and stay invested. That is literally all you need to do.