Smart investing: Align tax planning with investment goals

tax planning with investment goals

Smart investing: Align tax planning with investment goals

Humans are designed to have endless desires, be it taking an extravagant international trip or purchasing a luxurious car. Desires constantly arise in us only to be replaced by newer and stronger ones. A lot of people plan to invest in mutual funds with the intent of wealth creation to fulfil such desires. However, a part of this wealth is lost to taxes. Hence, it becomes essential to align your liability of paying tax on mutual fund investments with your financial goals.

Most of us plan our taxes with the sole purpose of saving our hard-earned money. For instance, the premiums paid on life and health insurance qualify for tax exemption under Section 80C and Section 80D, respectively, of the Income Tax Act, 1961. This is among the two reasons why financially savvy people opt for these insurance schemes, with the other being financial security. 

Wealth managers and financial planners unanimously agree that tax planning should be aligned with one’s investment goals. Moreover, aligning your mutual fund investments with your financial goals is a valuable way of selecting the apt mutual fund scheme for you.

Most tax-saving mutual fund investments are long-term investments. Equity-related investments could span from anywhere between 7-15 years, while debt-related investments could go up to 15 years. Hence, you should lay down your investment goals, time horizon, risk appetite, and anticipated returns, and accordingly reap the compounding benefits, which is one of the essential mutual fund benefits, while saving on taxes too. 

Here are some of the investment tools that help you save tax on equity and debt investments under Section 80C:

Equity: ELSS and ULIPs 

An Equity-Linked Savings Scheme (ELSS) is an ideal way to invest in equity mutual funds and save on taxation of mutual funds. Under Section 80C, an individual can save up to Rs.46,800 each financial year by investing in ELSS mutual funds.

Unit-Linked Insurance Plans (ULIPs), on the other hand, are long-term investment vehicles that provide life insurance and investment simultaneously. A part of the premium paid by the policyholder goes towards providing a life insurance cover while the remaining is invested in various equity and debt funds.

Debt: PPF & SSA

Public Provident Fund or PPF is a popular long-term investment option. This risk-averse investment tool allows you to deposit up to Rs1.5 lakh with an investment tenor of 15 years. You can also extend it within a year of maturity for 5 years.

You can also invest in Sukanaya Samriddhi Account (SSA) if you have a girl child under 10 years of age. The account will remain operative for 21 years since inception or till the marriage of the girl after she has turned 18, whichever is earlier.

Overall, it’s an excellent habit to invest your money as per your financial needs and goals and avail the tax benefits that come with these investment tools. However, you should invest in mutual funds online not just to save taxes, but also to meet your long-term financial planning and create wealth. Happy Investing!


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