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As this is peak time for all salaried class to look for Tax Saving Instruments, I thought to share how you can avoid doing the same mistakes again and again.

1) Insurance (Life and Health)- When I ask few salaried people about how they are planning about their tax saving then the first answer they say with big smile is, they have enough Insurance Payment to save tax under 80C (remember not enough cover). They share with proud that currently they purchased insurance plan either from friends or relatives who are agent of some particular company. Neither you nor your agent worked out how much Insurance cover you required or your “Human Life Value” and what is the future value of the returns you are going to get when your invested Policy matures. You may say with proud that you have cover of around Rs.10,00,000 for that you are paying around Rs.75,000 (aprox) then what will be the Rs.20,00,000 (Aprox Maturity Proceeds) value after 15 yr of 20 yrs of your policy maturity? It may be your 4-5 yrs yearly household expenses. Then what is use of purchasing such a plan which will not make you to sustain and not fulfill your financial goal?

Hence before purchasing Life Insurance always work out how much Life cover you need and what is the maturity value, not in today’s term but in future term. Also, is the maturity amount matches your any financial goal or not.

Health Insurance is usually taken care by Employer, but only few people know how much cover they have and who are all covered in that Insurance. In some cases people try to purchase through employer to seek cover for their spouse or parents (if are not covered by employer health insurance). But in this case also, employer chooses the company not the employee. Employer will deduct from salary for this and employees get relieved.

Have you ever thought which company the employer selected for covering your spouse or parents(who are not covered by employer), how the plan features are and is any other company providing better plan with competitive price in market? To my knowledge answer is always no no no.

Hence, please try to get knowledge about the health insurance provided by employer like how much SA covered, who are all covered, what are the plan features. If you are taking new insurance to cover non covered member of your family member then plan offered by your employer is good and competitive in price or not. Else purchase it in market by doing good homework.

2) Mutual Funds: It is always trend to invest lump sum by year end in Equity Linked Saving Scheme of mutual fund to save tax. But it is risky to enter equity market with lump sum investments and waiting for good returns after 3 years. Hence start in the beginning of financial year through SIP route which will reduce your risk of loss. Here again few people invest but never think is it worth to invest in equity mutual funds and wait for positive returns after 3 years. Also this invested money will be aiming any of the financial goals or not? In my view, if you have requirement of invested money at 3 years or within that period then never invest in Equity related market. You need to give sufficient time to grow it like 4,5yrs or more than that.

3) PPF-This is the good product for longer tenure and must be goal specific of maturity amount. But it is the product just to diversify your investments. Hence never invest all your money into PPF. Invest within 5th of each month instead of investing at year end. If you invest at year end then you will not get interest on the money invested for that year. But if you invest monthly then each month’s contribution will accumulate some interest.

4) NSCs and Fixed Deposits-Again these are low yielding products. Hence always keep in mind that how these are going to help you in diversifying your investments and how the maturity amounts can be utilized to achieve your financial goals.

5) Housing Loan-You take housing loan and take tax exemptions but you need to cover your life for the equal amount of Loan you have taken. Suppose something happens to you then your dependents may not be in a financial crunch to repay the loan. Hence suppose if you have taken housing loan of around Rs.50,00,000 then you have to take Life Cover of Rs.50,00,000 which covers till the last EMI ends. Nowadays bank started to offer this type of cover while giving loans. The best feature of this is, your Life Cover will also reduce yearly with the decreasing of Loan Amount you owe.

6) Infrastructure Bonds-This is the new avenue of investments started few years back. It is nice to invest in these Bonds if your overall investments under sections 80C, 80CCC and 80CCD is exhausted means including all three sections 1,00,000 permissible limit. You can claim deduction under Section 80CCF if you invested in Infrastructure Bonds. But remember that Bonds are not always risk free investments they tend to fluctuate with interest rate of market.

These are the few basic mistakes I noticed what people tend to make in a year end hurry to save tax. Hence plan your Tax Saving Options in such a way that it has to achieve both tax saving and your financial goals. If your only aim is to save tax then you will end up in a situation where you will not get cash flow for your desired goals.

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