Do not pick tax-planning options blindly, focus on goal, objective
By DK Aggarwal
Tax planning provides not only the opportunity to review the activities of the past year, it also generates an invaluable opportunity to leverage tax planning techniques. Good tax planning and tax-efficient investing should be integral components of any wealth creation and preservation strategy.
There are various options for tax planning, ranging from PPF, NSC, insurance policies, pension funds, infrastructure bonds, equity-linked savings schemes (ELSS) and unit-linked insurance plans (ULIPS), but tax planning through equity investment related to saving instruments not only reduces tax liability but also ends up saving towards the various goals one has set for different life stages.
One can invest through equity mutual funds. Also it could be seen that due to lower interest rates in PPF and NSC, taxpayers are getting attracted toward equity-linked tax-saving schemes, as they not only give tax concessions, but also help generate good returns.
This is evident from the data as given by Association of Mutual Funds of India that equity and equity-linked saving schemes (ELSS) attracted an impressive inflow of around Rs 1.33 lakh crore in CY 2017, much higher than the Rs 51,000 crore inflow seen in CY 2016.
When contemplating an investment, the investment choice should be guided by two things: investment horizon and risk appetite. Equity always gives non-linear return and, therefore, you should have the patience to take the fruits.
Equity returns have been spectacular over the past few years. Though currently the market has been seeing some correction, it is poised to move northward on the back of strong economic growth.
Investing for the long term will help get more returns and also the risk of equity investment is likely to go down with investment for the long term.
Investors looking to enter the market now wonder if it is expensive and if there is further correction around the corner. But honesty, no one can time the market. Instead of trying to time the market, the best strategy would be to invest through the SIP route with a clear long-term investment horizon. SIP can help taxpayers average out the cost of purchase and maximise returns over a long period.
To conclude, days have changed. Taxpayers are diverting from traditional ways to modern ways of tax planning. While investing in equity-related instruments, taxpayers can have a combination of stable returns, tax efficiency and rupee-cost averaging.