At the beginning of the financial year, many people look for investment avenues and getting their taxes and investments organized. Your investments are unlikely to align well with your financial goals. Hence you need to be aware of how to invest money and avoid making delays or hasty decisions in investments that may lead to regret later. Investing early would give you a higher return on the same investment along with the same tax benefit. Especially for investments having market risks, it’s always better to invest periodically. Let’s look at the 7 tax-saving investment mistakes to avoid while doing your tax planning this year.
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1. Know your taxable income
Taxable income is the amount of income used to calculate how much tax you owe to the government in a given tax year. It is generally described as adjusted gross income which is the total income that you are left with after all the deductions or exemptions allowed in that tax year.
2. No investment planning
As financial goals and preferences will not be the same for everyone, the number of investments and tax-saving avenues should be decided based on one’s individual goals. While tax benefits on certain long-term investments are given to encourage people to save and invest, but you should first determine what your financial goals are and choose the tax-saving products accordingly. So, the investment planning should be done carefully, if you fail to plan you will have to face the consequences later.
3. Analyze your options before investing
Before investing for tax savings you need to check with all the different types of investment options available to you. Doing this will save you from making a costly mistake in investments. It is also advisable to get expert advice from a wealth coach or a financial advisor who can guide you and make you understand technical terms and the tax-saving options you have on your palate.
4. Consider the overall asset allocation
For smart wealth creation saving tax should your ultimate goal. There are numerous options like gold, SIPs, stocks, bonds where you can allocate your money to different assets. Instead of adding funds to items that just save taxes, invest the same amount smartly and enjoy the long term compounding benefits.
5. Don’t give up your emergency savings
Your emergency savings should never be used for making investments. These savings should remain untouched and if you don’t have one yet, you definitely shouldn’t invest it to save tax. You can set up a fund that will be set aside and be used only when it is required.
6. Invest in other options besides insurance
There are various tax saving investments in India where you can start investing rather than just settling for an insurance policy. Making investments in multiple insurance policies or investing in one just to get closer to your 1.5 lakh exemption limit is not a wise decision. It’s best to use insurance for protection and not for saving taxes or investing.
7. Be aware of the terms and conditions
Before you sign up for anything always go through the fine print and read through the terms and conditions mentioned. You should know what lock-in periods you are looking at and invest only if you are prepared to block your investment for that period. It is crucial to understand that the ultimate goal of your investments is long-term wealth creation for you and your family.
By avoiding these tax-saving mistakes you can plan your tax-saving investments with ease for this financial year. The key is to exercise due caution while making investments to generate wealth for the long term.
