While investing is an important aspect of personal finance, you can’t ignore the tax liabilities as well. However, there are investment plans that can help you in saving income tax along with investing your savings.
You can’t run away from your income tax obligations, but you can certainly manage your finance intelligently to reduce your tax liabilities. There are many investment plans that are not only good for investing but also help you in claiming tax exemptions under various sections like 80C, 80D, or 80 TTA.
Read further to know the various investment plans that you can consider for investing your money as well as saving taxes.
Fixed Maturity Plan
These are the non-linked, non-participating plans that provide fixed benefits at the end of the maturity period. The policy buyer has the option to either pay a single premium at the beginning of the policy or keep paying a regular premium every year for a fixed period, say 10, 15, or 20 years. The policyholder will get a fixed lump sum amount on the maturity of the plan.
Rider- Critical illness, income on accidental disability
Unit Linked Insurance Plan (ULIP)
While ULIP plans do not provide any guaranteed return, they can be instrumental in generating inflation-beating returns in the long run. ULIPs can offer you the dual benefit of insurance coverage and wealth generation. Premium payment terms and the payout on maturity in ULIPs are similar to regular life insurance plans, except that the maturity amount is not fixed here.
In ULIPs, a part of the premium collected from the policy buyer is invested in equities and other market-linked instruments. The other part is invested in fixed-return instruments such as debts, government securities, etc. The policyholder can decide the exposure limit in different instruments by choosing different fund managers.
Health Insurance Plan
Inflation and rising healthcare costs can severely affect your savings when faced with a health emergency. Therefore, you should have a good health insurance plan to cover your family’s medical expenses in case of any severe illness or health care urgencies.
You can have health insurance coverage by purchasing a health insurance plan and paying an annual health insurance premium thereafter. The coverage amount depends upon the premium you pay and other underwriting factors like your age, medical history, lifestyle, etc.
Immediate Annuity Plan
Investing in an immediate annuity plan can be beneficial to those who want a regular stream of income after retirement. In such plans, a person starts receiving a fixed pension as soon as he/she buys the plan, and the pension is disbursed as long as the person remains alive.
Buyers of such plans don’t have to worry about the market volatilities or falling bank interest rates as they keep getting a fixed pension.
Public Provident Fund
The public provident fund works like a long-term recurring deposit where you keep investing regularly in the fund and get yearly interest on it. The invested amounts and the interest amount over the year pile up together and help you generate wealth through the compounding effect.
But there are certain drawbacks of PPF, as mentioned below-
- You must maintain the account for a minimum of 15 years.
- You cannot withdraw money during the first five years of operating the account.
- The interest rates are not fixed. They are often revised and reduced by the government.
- The upper limit of investment is restricted at Rs 1.5 lakh per year.
Good investment plans, like HDFC saving investment plans, can help you achieve your long term financial goals without worrying about taxes. However, the thumb rule of investing is not to put all your money in the same plan. Instead, you can consider shortlisting two to four different tax saving plans and evenly spread your investment across them.