We are now on the cusp of another financial year. As always, the close of the financial year is marked by a mad flurry to save taxes on income. This is often done by making last-minute investments to save on tax.
However, there is a high risk of making costly errors by making last-minute investments. You might buy insurance policies that save you tax but which come with really high premiums. Or you may try to show rental income when none exists. Your accountant might even suggest buying new policies and mutual funds that can help you save taxes. You might be tempted to try out options that might dent your finances and not help your future goals in the least.
So, which options do you choose? We suggest the following tax saving mutual funds for 2019, just in time before you file your ITR:
ELSS - Equity Linked Saving Schemes
The Equity Linked Saving Schemes (ELSS) is a tax saving mutual fund that has the shortest lock-in period in its asset class: just 3 years. However, you can choose to stay invested after the lock-in period has elapsed, to maximize the fund's growth potential. Since it has greater exposure to equities, the ELSS fund shows a higher propensity for growth. Its risk factor is evened out with long term investment. It is also one of the best tax saving investments that offer up to Rs 1, 50,000 rebates every year under Sec 80C of the IT Act, 1961.
ULIP - Unit Linked Investment Plan
The ULIP (Unit Linked Investment Plan) is a mutual fund that offers a component of life insurance coverage as well as market exposure to high-quality funds. The ULIP offers tax saving investment benefit up to Rs 1, 50,000 per year under Sec 80C. Also, you can buy the ULIP for your spouse and child. Besides offering wealth over the long term (10 years vesting period is recommended in most cases), the ULIP also does not charge tax on the maturity amount.
NPS - National Pension Scheme
The NPS ( National Pension Scheme) is for those in the unorganized sector and businesspersons/self-employed people who are normally not liable for Government pension when they retire. The NPS offers a high annualized return rate ranging from 12% to 14%, and you also have the liberty to withdraw against the fund if you need money in an emergency, but only after the lock-in period has elapsed. It is a tax saving investment that offers rebates up to Rs 1,50,000 under Sec 80C of the IT Act, every year.