Get Much More Than Tax Savings With Tax Saving Investments

Tax saving investments can play a much great role in creating wealth, and not just save tax. Here’s how.

- Udayan Ray

As with other things in life, with tax saving investments too, one needs to keep in mind the means and the ends. If tax saving investments provides the means to save tax, you need to ensure that you choose the best tax saving investment. At the same time, you also need to be clear what these investments will need to achieve. The question then is what else can your tax saving investments achieve for you? The good news is that tax saving investments can provide you with much more than tax savings. Of course, you need to keep the following things in mind.

Fit with financial goals Like your other investments, tax saving investments need to be earmarked for major financial goals such as children’s higher education and retirement. “Tax planning should not be done in isolation. You must align the larger investment plan with tax saving instruments to get optimal returns,” says Vishal Kapoor, CEO, IDFC Asset Management Company,

Aligning tax saving investments with financial goals happens naturally as tax saving investments have long tenures such as 15 years for Public Provident Fund (PPF) and lock in periods ranging from 3-6 years and more. “There is a lot of deterrence towards use of the savings for immediate needs,” says Gaurav Goyal, National Head-Sales & Distribution, Principal Asset Management.

Risk Tax saving investments are available across the investment risk spectrum. You have lower risk, fixed income options like notified fixed deposits (FD) and higher risk options such as Equity Linked Savings Scheme (ELSS) and unit-linked insurance plans (ULIP). Depending on the asset class, there are associated risks. Thus, while fixed-income investments can be affected by inflation eroding the purchasing power of the money, market turbulence could impact higher risk, equity-related investments like ELSS.