Three major things any common individual will look for :
- Protect self
- Accumulate the amount
- Retirement plan
Let us look at the tax instruments according to investment type and also compare and see how they are going to fulfill our basic requirements :- protection, accumulation and retirement.
Sec 80C(2) offers a wide range of tax saving options and some popular ones are listed below:
- Provident Fund (PF) *Public Provident Fund (PPF)
- National Saving Certificates (NFC) * Kisan Vikas Patra (KVP)
- Pension Funds * Housing loan payments
- Life Insurance * Equity Linked Savings Schemes (ELSS)
- Fixed Deposits (FD) * Infrastructure Bonds
Lets discuss in detail,
1. Guaranteed Return (PPF, NFC, Infrastructure Bonds, KVP and FDs)
- These options are considered as safe, as they are backed by govt or reputed financial institutes ( most of the elders suggest this )
- As name indicates, these options earn fixed or guaranteed rate of Interest every yr.
- These are not inflation proof in long term. The returns from these investments are in range of 6% - 10% , after inflation between 3%- 4%.
- Interest or return received from these are taxable. I feel these options help u in postponing paying tax.
Hmm... for me its not fulfilling any of my requirements, these options are like keeping gold in locker where there is not much change in its value and in reverse we need to pay for the locker.
2. Insurance Polices
In this we have two different options, Insurance and ULIP (Unit Linked Insurance Plan)
- These generally return a predetermined amount on maturity
- This is a must for every Individual
- In case of disability or death, sum assured is given
- Investment + Protection
- In protection part it usually includes: Death benefit, Disability & Critical illness
- Investment works like a mutual fund.
- Transparency in charges
- Partial withdrawal facility
In ULIP, a percentage of the premium amount goes for providing insurance coverage. It reduces the growth potential of your investments
Unstable and stressful lifestyle is leading to unexpected health challenges. All the savings may get wiped away with one unforeseen incidents like accident, life threatening diseases e.t.c
Insurance will be very helpful in such cases but finding the appropriate policy is crucial.
ULIP gives both protection and investment at one place. It is taking care of my protection, accumulation and retirement - all three requirements I thought before.
3. ELSS (Equity Linked Savings Schemes)
- Amount is invested in equity markets
- 3 yrs locking period
- Tax free returns
- Systematic Investment Plan (SIP) facility
Equity markets are volatile and risky compared to other two investing options.
More risk indicates more returns too... This option helps us in investing monthly in small amounts. It's helpful in fulfilling the criteria of accumulation if invested in long term.
Thus, each investment product has distinct characteristics and each is designed to do something different
How much percentage can you invest from your income?? Which combinations will give you the best investment benefits??
....... check this space for more info in my next post
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