The season for tax-saving is upon us, at least for those who haven’t been conscientious enough to do so regularly throughout the year. Unfortunately, that still means far too many people who will make all their investments between now and March 31. There are few investor who normally leave this till around lunchtime on March 31.
However, if you are making your investments now, don’t just choose whatever is being offered by a salesperson. For a variety of reasons, savers tend to make hasty and poor decisions while choosing their tax-saving investments. For one, many of those who wait till the end of the year are those who don’t make any discretionary investments other than the tax savings. They’re inexperienced in this whole activity and make a foray into investing only once a year, generally to fall prey to the first salesman who comes along. As long as an investment saves tax, they feel that the immediate job is done.
However, this approach is a waste of money. A good tax-saving investment must be an investment first and a tax-saver later. For most people, the investment that should make the most sense is in an equity ELSS fund. Moreover, at three years, the ELSS lock-in is shorter than all fixed income options but still long enough to be the right time frame for equity investments and damping out most of the risk. On top of that, ELSS returns are tax-free like all long-term equity returns.
Equity is the only investment class which helps investor to fight the inflation unlike any other debt investment giving fixed (negative return post factoring inflation). For any kind of long-term investments, fixed return investments no longer make sense when the returns are less or equal to inflation at present.
Equity Markets have corrected from the all time highs giving an investor an opportunity to invest now and earn good returns in long run (better than fixed return instruments). Investor needs to have good mix / balance of equity and debt instruments even while planning for tax saving.
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Happy Investing
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