Plan your retirement: Financial year-ending may be an opportune time

A Financial Year ending on March 31 is a wake-up call for many. The last-minute rush to save income tax by investing ‘somewhere’ quickly, is the game plan. Investment managers and distribution houses too have understood this situation and they try to offer some solutions. There are many social media influencers who are vocal about ensuring a confluence of your financial goals and tax planning. To put it simply, they say, invest in all those avenues that will help you to achieve your financial goals. Saving tax should be ancillary and that should come as a by-product of your money moves. For example, if you are looking to buy a house for self-consumption, then you may consider taking a home loan. The interest and principal repayment paid on a home loan– both would bring some tax-saving.

This idea sounds good. But since we do not have much time left for the deadline, individuals have to be measured in their approach to handling their tax planning in the light of financial goals. Some basic and necessary things must be adhered to avoid mistakes – no long term products or no long term commitments. As we do not have much time to think, there is no point in buying a house just because you want to buy one and you want to avail tax benefits of a home loan. An important thing is not to hurry and buy a 20-year life insurance policy with an investment product. These are complex products to understand and buying decisions taken in a hurry may backfire if the product is not necessarily serving your purpose.

Second and more important point is not to try to impose a financial goal on yourself. For example, just because your neighbour has bought one car, do not decide to save for the downpayment of a car. Your financial goals have to be natural and not be a reflection of emulation of your friend or anyone you know. They should be a part of your life and if you do not connect with a goal, there is less chance that you will strive to achieve it and even less chance that you will enjoy it.

In the context of these facts,one may wonder, which goal she should target. The one most natural goal that would be applicable to most of us is--retirement.

We are all going to age and retire from our vocation. Funding retirement is a task, and one may have to be disciplined to build a large corpus over a long period of time. Employing a mix of products is probably the best approach to achieve this financial goal. Here are a few products that can be of help and plan your taxes too:

National Pension Scheme:

Contribution up to Rs 50,000 to NPS account in a financial year, can help you with a tax break. The tax benefit is over and above the tax benefit available under section 80C. NPS offers you pension in your golden years.

Public Provident Fund

If you already have a PPF account, then you can contribute to it.

ELSS

Equity Linked Savings Scheme offered by mutual fund houses invest in shares and help you create long term wealth. These come with a smallest lock-in of three years. Among the tax planning tools, these can offer highest returns, given the fact that ELSS is the only pure equity product available. There is no compulsion to sell your investments in ELSS after they complete three years of lock-in. Tax saving funds, as ELSS are popularly known as, from the fund house of ICICI, Mirae and Tata can be considered for investments.

PPF and ELSS can be used to fund your retirement. Together a contribution up to Rs 1.5 lakh in these along with other eligible investments fetch you tax deduction under section 80C of the Income Tax Act.

An important point one should never miss, especially for those who have dependents- your spouse too is going to retire and will require financial support in golden years. She should be supported even if you are not around. In case of the unfortunate death of the breadwinner, the spouse should not be left in lurches. The best way to avoid such a situation is to purchase adequate term life insurance – the sum assured should be at least 15 times the annual salary.

Focusing on high sum assured, ensures that you automatically stay away from most investment linked insurance products. Payments made towards term life insurance also bring in tax benefits under section 80C. If you do not have enough time on hand to assess the term life insurance policies, go for one as soon as possible – maybe next month, when most people go slow on insurance purchases.

Disclaimer: This report is prepared in his personal capacity and neither the Author nor Money Honey Financial Services Pvt Ltd assumes any responsibility or liability for any error or omission in the content of the article. Investments in mutual funds and other risky assets are subject to market risks. Please seek advice from an investment professional before investing.