Wise Investments For Tax Deduction Under Section 80C

Investment wisdom under section 80C

With the advent of the December, the “tax birds” start to chirp loudly and slowly but surely, the common investor rises from his slumber. He realizes, there is no more time to “snooze” again. He wakes up and invests blindly into any instrument which gives him a tax deduction and helps to fulfill the limit of Rs 150,000 available under section 80C.

If you feel, you fit into the above description, I am here to help you. Believe me, I really would like to help.

It is difficult to make wise investment decisions in December, more so in March. However, April is a very good time. Nonetheless, if you are planning to invest to claim tax deduction under section 80C, here are some wise things to do when you wake up. (Listed in order of priority)

1. Do you have Term Insurance?

Term insurance is the first “investment” you should be doing. It is a pure risk cover plan and you won’t get anything if you survive the policy term (just like you won’t get anything back if your vehicle / house is not damaged during the policy term). It is a tax deductible expense.

However, the reason why it is first in order of priority is that it gives you adequate risk coverage at a lower premium should something unfortunate happen.

Some companies also offer critical illness riders which are worth a look. Or you may decide to buy it separately.

2. Do you have Health Insurance?

The next thing you have to ensure is to have a health insurance policy for your family. Sudden and unexpected medical expenses can severely dent your financial planning. And so, having adequate health insurance coverage helps.

The features of health insurance plans are varied and there are lot of choices. It is really upto you as to what you need.

3. Have you invested in ELSS?

ELSS is short for Equity Linked Savings Scheme. It is nothing but a diversified mutual fund which is notified for tax deduction benefit under section 80C. The lock in period for this investment is 3 years.

It makes huge sense to invest in ELSS and stay invested for 10 years+ because the average returns from these schemes are much higher than other avenues of investment like PPF, NSC, etc.

The lock in period of 3 years is also much less than other investments which has tax benefit. However, I would advise to stay invested for 10 years or more to let the compounding factor to play out and benefit you.

Most people are heavily invested in debt which includes bank deposits, NSC, PPF, EPF, etc. Depending on your risk tolerance capacity, you should be able to arrive at a reasonable asset allocation for your overall portfolio.

For most people, usually this would translate into putting extra money into equities. However, this will differ from person to person.

Here is an comparative illustration of investment in PPF and ELSS. The returns are actual historical returns of these investment avenues. One of the prominent ELSS funds is being taken here for illustrative purpose.

ELSS vs PPF illustration

As you can see from the above table the returns show a marked difference from the 4th year onwards. It makes sense to invest and stay invested in ELSS funds for the long term.

Click here to start investing in ELSS funds online

Wise Investments For Tax Deduction Under Section 80C
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