Mayhem of the tax-saving investment season has come again. It always falls during January to March in every financial year. With less than two months left, for Indian investors have had vast number of tax-saving investment products is available in the market where they feel confused, scared and helpless. And the most of them are duped by insurance agents or in a haste to save taxes. It is said that “Haste makes waste.” The investment may not be a waste per se from a monetary perspective, but it is certainly a waste of an opportunity to move in the direction of attaining your financial goals. That’s because you may be investing in insurance plans, mutual fund schemes, fixed deposits or any other that you don’t really need.

That’s why tax-Saving Investments should also be aligned to your financial goals. For example, if you are at a stage in life where you can take risks and having horizons of goals to say 15-20 years, investing in National Savings Certificate, insurance plans or 5 year bank fixed deposits will not serve your purpose.


Overview of Tax Planning

Tax planning is no different from financial planning. Tax deductions are given to encourage savings and investments. It should be part of your overall financial plan which in effect means tax planning is a subset of financial planning. Your financial plan will set your financial goals for you based on your aspirations, your lifestyle, your age group, size of family, etc. The moot question, here you need to ask yourself is, ‘Did you align your financial goals while investing in an instrument for tax saving purposes?‘ Well if your answer to that is ‘yes’, then you’re moving in the direction of financial planning arena.

Meet our Smart Tax Saver

Let’s meet our a smart tax-saving investor aged 32 year old Chandigarh-based software analyst at Infosys, Manoj Kumar Arora, wants  to save for the education and marriage of his two daughters. Given that these goals are a good 15-20 years away, he has been advised to invest in the tax –saving investments of Public Provident Fund (PPF) and equity-linked savings schemes (ELSS) offered by mutual funds to prepare for his daughters’ future needs, including retirement. In fact, Mr. Arora, has used some money from his tax saving investments to make the partly pre-payment of loan for his acquired house in Greater Noida a year ago. So, he has started a monthly SIP of Rs 5,000 in an ELSS fund, thus aligning his tax-saving investment with a long-term financial goal because it serves a dual objective in his financial plan. That’s good thinking on Mr Arora’s part to pick the right tax-saver and align it with his future requirements and goals.

Similarly, you can also align it with your other investments and help them work in tandem. For instance, ELSS can work with your other equity mutual funds and provide growth to your mutual funds portfolios for future goals such as children’s higher education and retirement.

Allocation of Investments

After examine your tax liabilities and finances, you have, now a slew of options to select tax-saving instruments. Undoubtedly, the choice of investment would largely depend the most significant factor with respect to product allocation revolves around its suitability for your investment time horizon to the goal, taxability of interest, lock-in period and returns. There is no point in allocating saving to an aggressive equity mutual fund if you only have 1-3 year time horizon as you cannot stomach even minimal fluctuations in your portfolio.  So, you should allocate your Rs1 lakh limit across different Sec 80C offers a wide range of options as dictated by your financial goals and each suited to a distinct need. Your allocation can have mutual funds portfolio with index or large-cap equity and mid-cap equity funds, besides debt and gold funds.

Link your investments to long-term goals

When you have long-term goals, such as children’s education and wedding or even to save for down payment towards home loan that is 6-8 years away, by choosing the time-tested PPF and linking it to said goals is a great way to start chasing your goals. And since it can be extended, it is a good vehicle to use to build a retirement nest egg. Being fixed interest-bearing such as the case of PPF may fail on real return as its inflation, but tax-adjusted return are high because of its interest is tax-exempted. Similarly, savings in ELSS can also be marked for long-term children’s goals as such schemes invest across scrips and sectors just like any other diversified equity mutual fund. The only difference is that ELSS offers tax deduction benefits up to Rs.1 lakh under section 80C and comes with a three-year lock-in period. After three years, you are free to exit or stay invested to enjoy equity returns over a long period of time. One must continue it even after the three year lock-in has ended to gain advantage of equity returns over the long term; especially when the goal is away or market conditions are dull.

Caution about life insurance plans

A word-caution about life insurance plans should never be bought for tax deductions, but only to get secure the future of your loved ones in the event of your untimely death. Thus, you must choose for pure-term plans that provide you the highest possible coverage at the lowest premium to claim a tax break and eschew traditional plans, such as endowment and money back plans as they neither beat inflation adjusted returns nor transparent in terms of disclosure and have a rigid product in nature.

In nut shell, the best option is not necessarily the one that promises the highest rate of return or the most significant tax benefits, as important as these considerations may be. Rather, the best option is the strategy that enables you to achieve your goals without forcing you outside your investment comfort zone.

This article got published in Hindi at Dainik Bhasakar on 02-02-2016

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Suresh Kumar Narula

SEBI Investment Advisor, Founder & Principal Financial Planner at Prudent Financial Planners
Suresh K Narula is founder and Principal Financial Planner at Prudent Financial Planners. He has earned the professional CERITIFIED FINANCIAL PLANNER and got registered with SEBI as Investment Advisor. He writes on personal and financial planning articles and got published in Dainik Bhaskar, Business Bhaskar and The Financial Planner's Guild, India. He is also a member of Financial Planner's Guild India ( An association of practicing SEBI registered Investment advisers) to create awareness about Financial Planning in general public, promote professional excellence and ensure high quality practice standards. Suresh received his an from Himachal Pardesh University and an MFC from Punjab University, Chandigarh. He can be reached at
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