With barely two weeks to go in the fiscal, most of you would have already made your tax saving investments for the year. If you’re yet to make your tax saving investments under Section 80(C), here are four worthwhile options for you to consider.
ELSS or “Equity Linked Savings Schemes” have risen in popularity in recent times, mostly on the back of a strong equity market performance in 2017, and AMFI’s consistent efforts to promote Mutual Funds amongst the less-informed masses. With a category average 5-year return exceeding 18% per annum as on date, ELSS funds have caught the fancy of retail investors. In a nutshell, ELSS funds are a type of equity oriented mutual fund, with a mandated 3-year lock in. Most ELSS funds maintain diversified portfolios, with an even spread between various market capitalisations. The locked in AUM allows fund managers to take value-based calls in richly valued markets such as these.
Considerations: ELSS funds are high risk in nature, and investors should make an effort to understand the potential downsides before investing. Additionally, with the new norms related to dividend distribution taxes that have been proposed in the recent budget, opting for the growth option makes a lot more sense.
Low Cost ULIP
ULIP’s have long moved away from being the horror show that they were pre-2009, when distributors and bankers used to gobble up the best part of your first three years’ premiums as sales commissions. Woeful tales of ULIP mis-selling, including them being sold as ‘five-year FD’s to hapless senior citizens and even poor farmers have become an unfortunate part of insurance folklore. These days, a number of ULIP’s have become quite competitive, with several even slashing out upfront commissions altogether in the interest of clients. ULIP’s require a continuous commitment of 5 annual premiums, post which IRDAI norms allow you to withdraw your moneys.
Considerations: Do your homework. Make sure you study the plan in detail, and only choose one that has no premium allocation charges, and very low recurring charges. Additionally, steer clear of greenhorn ULIP’s whose funds do not have established track records. Plan your intra-ULIP asset allocation smartly, instead of blindly choosing the default option.
Sukanya Samriddhi Yojana
Sukanya Samriddi Yojana or SSY was set up with the singular intent of helping people secure the futures of their girl children. Your SSY account will attract interest on the 10th of every month, and the moneys will be compounded on an annual basis. You’ll need to continue making the deposits for a period of 15 years, and the balance will continue to attract interest until the 21st year of your starting the account; at which point it will mature, tax-free. Alternatively, you may withdraw the entire balance, if you so desire, for her education purposes when your daughter turns 18, or when she gets married. The returns from this scheme are generally higher that the yield on government bonds. Presently, it stands at 8.1%.
Considerations: Though the SSY is a good alternative to fixed income instruments, it will only barely help you outpace inflation – so make sure you balance out your goal-based savings for your daughter’s future with equity-oriented investments too.
Senior Citizen’s Savings Scheme
If you’re above 60, and risk averse, you could consider investing into the SCSS. The SCSS or Senior Citizens Savings Scheme is a 5-year, fixed return investment with a sovereign backing. The retiree has the option of extending the tenure by a further three years at the end of the 5th year, at the rate prevailing at that time. Unfortunately, the SCCC has a hard cap of Rs. 15 lakhs, implying a maximum possible income generation of Rs. 10,500 per month at the current rate of 8.3% per annum. Interest income generated from the SCSS is fully taxable in the hands of the retiree.
Considerations: SCSS rates fluctuate, and are reset by the government at the start of every quarter. This may work to your detriment in falling interest rate scenarios.