Saturday, 5 March 2011

Tax Saving Investments, handle with care

Most of the tax payers joining life insurance policy for saving tax other than protect their families from the financial crisis which may happened in the event of any untimely death of the person. A good portion of insurers seek financial benefit from the policy apart from risk cover. The main reason is that nobody likes to think that any unfortunate event may happen in their life.

During the end of each financial year almost all insurance companies selling a majority of their products, which means the main reason of joining the policy is saving tax. Under section 80C of income tax act, you can get exemption of Rs. 100000 for any tax saving schemes which includes Life Insurance Policies also. Then people think that they can get double benefit from taking Life Insurance.

Recently there are so many Units linked Insurance Plans are introduced by different insurance companies with attractive offers. But most of these ULIP plans are not working properly. Even if there are some strict guidelines from Insurance Regulatory and Development Authority (IRDA), these products could not perform well. I don’t forget that some of the ULIP schemes doing very well in the market.

The main attraction of the ULIP schemes is one can get benefit from the stock exchange and at the same time he can get a risk cover of his life also. But the second part may be performed well and the first part is in doubtful. Stock trading is really risky and nobody can assure a positive return from stock market.

We strongly recommend that do not mix your insurance and investments. Consider your financial requirements and plan your investments accordingly. When you go for an insurance policy go for a pure insurance like any term insurance plans to secure the financial future of your family with minimum cost. ULIP also gives life protection, but it is costly.

If you go for tax saving, better to go for ELSS (Equity Linked Saving Scheme), if you want to harvest from stock exchange. But this ELSS also does not guarantee your money and income. It is according to the performance of the volatile stock market.  And your money will be held up for lock in period of 3 years and the outcome is uncertain. You cannot redeem it before the lock in period, even if the market is going down straightly.

For tax saving we advice the traditional tax saving plans such as PPF, PF etc. which offer a tax free interest and you can avoid the fear of loss. In ELSS and ULIP there is no guarantee of profit and the invested money. IF your age is less than 30 you can try for ELSS, so that you can hold the investment for a long time to get back the capital invested with profit. After thirty you must concentrate the financial needs of your family such as buying a residential property, higher education and marriage of your children, retirement life etc.

If you have a high risk appetite you can go for stock trading and related investments. By buying the share of strong companies and holds it for long period to get a good return from stocks and also from capital gain tax.

So plan your investments and tax saving wisely for a better financial future. Almost all people working for supporting themselves and their family. Then you must plan it wisely. Wish you a happy investment life and tax saving.

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