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Investment Planning: Tax Saving Investment Allocation – Axis Direct
AxisDirect-O-Nomics
Jan 17, 2019 | Source: www.financialexpress.com
Asset Allocation Strategy For Tax Saving
Lay down your investment goals, the time horizon and anticipated returns from different equity-linked and debt-related investments, then reap the compounding benefits and save tax, too.
At a time when both equity and debt have generated below average returns, it has become tricky to invest for tax savings. So, before you decide where to invest to save tax before March 31, understand why you are investing and what your expectations are. An asset allocation will help you take tactical and strategic calls in the portfolio.
Most tax-savings related products are long-term investments. Equity-related investments could be for up to five years and debt related-investments could span for 15 years. Ideally, investors in equity should look at a horizon of three to five years. So, lay down your investment goals, the time horizon and anticipated returns and then reap the compounding benefits and save tax, too.
Equity investing: ELSS or Ulips?
In equity, equity-linked savings scheme of mutual funds still remains the most preferred choice for investments related to tax-savings. However, last year the government introduced 10% long-term capital gains tax after one year on gains over `1 lakh. Being an equity-linked fund, there is no guarantee of returns as returns mirror the stock markets and the financial sentiment of the market in general.
These funds are open-ended and have a lock-in period of only three years, the shortest among all tax-saving options. Investors can invest through monthly systematic investment plan (SIP) and stagger the investment. By taking the SIP route, one can stagger the investments and reduce the risk. An investor can put as little as Rs 500 in ELSS, unlike other equity-oriented funds where the minimum investment is `5,000. Investors can get deduction of up to `1.5 lakh under Section 80C of Income Tax Act.
If one is looking for an insurance cover and investments, then consider unit-linked insurance plans (Ulips). Unlike long-term capital gains on equity-related products, income from Ulips is exempt from tax. Investors can get tax breaks on investments of up to Rs 1.5 lakh. However, Ulips come with a five-year lock-in period. Before buying a linked life insurance policy or ELSS for tax savings, understand your needs and whether the product is suitable or not. Or else, the portfolio will not be able to meet your financial goals.
Related Keyword
Tax Saving
Long term capital gain/loss
tax
AxisDirect-O-Nomics
ELSS
Tax Savings Funds
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