Skip to main content

5 points why Tax Planning in March is not a great idea



Yet again the time has come for all of us to invest to save taxes or by the next month we won’t be able to do so as new financial year will start. But, the question that keeps hanging over is, why do we need to wait for the last month to do savings for our Tax Planning. Why don’t we start this exercise in the beginning (April) only so that we are on track? What we fail to understand is that Tax Planning is a part Financial Planning and the investments we do in the name of Tax Saving should be aligned to our Long Term Financial Goals. And it is not possible to plan adequately if we wait till the end of financial year to invest for our tax savings. Let’s keep in mind these common mistakes which an investor might commit while doing tax saving in the month of March.
1.       Investing all money into Insurance Plans: Insurance by definition itself means insuring your risks. Investments in Insurance should be really done after careful evaluation as the returns will be lesser and commissions paid to the distributors are higher. And most of the time insurance products come with longer term periods of 15-20 years which might not fit into overall frame of your long-term goals as the returns are way much lesser if we have to beat inflation.
2.       Investing in 5-year Tax Saving FD: You might be a conservative investor but it doesn’t mean that you invest all your money into Fixed Deposit which in actual is giving negative real return if we consider inflation. Yes, you can invest in debt instruments, but you can choose PPF or even EPF which give better returns as of date in comparison to Fixed deposits.
3.       Not utilizing all benefits: Section 80 (C) is not the only section where you can save taxes. There are various sections under Income Tax Act wherein you can save taxes be it Section 24 or Section 80 D. If you are doing Tax planning in the end of financial year, you might not get time to utilize it to its maximum and hence will have to pay more.
4.    Putting Lump-sum in equities: You can invest in Equity Linked Savings Schemes (ELSS) of Mutual Funds to save taxes and they have a lock-in of 3 years. But, if you invest lump sum in the last month, you are not using equities in the right manner. Only God knows what will be the market levels, whether you are buying at right price or are paying more than the intrinsic value. It is true that nobody can time the market, but then we have SIP (Systemic Investment Plan) to counter such issues.
5.       Inappropriate Asset Allocation: When you do tax saving in panic mode, you often forget to have right asset allocation mix as per your risk appetite. There is tendency to go high either on debt or on equity side without having the right mix due to which the overall portfolio might not perform as per expectations.

Above All, biggest disadvantage of doing Tax Planning in the end is that it causes dealignment of your investments with regards to your Financial Goals. One should not forget that Financial Planning is a Bigger Picture and Tax Planning is just one part of it. And if every year we do our Tax Planning in a hurry, we are kind of making new puzzle every time rather than solving the real and bigger one.


Charu Hastir, CFPCM is founder of http://www.theriteplan.com/. Rite plan is an online financial planning portal created to achieve a single objective of providing easy and Do It Yourself Financial Planning to netizens. Rite Plan is wholly owned by Tikkun Olam Financial Planning Services LLP. Please visit: https://theriteplan.com/index.php?route=common/home/
Labels:

Comments

Post a comment

Popular posts from this blog

What is Financial Planning?

What is Financial Planning?

One of my friends came to my place for a cup of coffee and while chatting over how life is going, where is it heading, he told me that his elder daughter wishes to go abroad for her graduation. And when I asked him that how is he planning to fulfill her wish, he just laughed it off saying that her graduation is 10 years away, why should he get worried about it now. This attitude of his made me think about the importance of planning ahead of our financial goals and how many of us are conveniently ignoring this very fact.
The Term Financial Planning defines itself as planning your finances well. It is a perfect marriage between your finances and your life goals. Efficiently managing your expenses and savings in order to achieve your future goals is nothing but Financial Planning. What are future goals? They differ from person to person. Some might want to take a luxurious trip abroad and some might wish for own home. But there are few goals which might be com…
9 comments
Read more

5 ways to trick yourself into Saving Money

Saving money has always been a daunting task and most of us fail miserably at it. One can relate more to this after seeing the average savings contribution. Lavish vacation or a fancy car can always distract us from our long-term goal of owning a home. It was easier in the earlier times when the life expectancy was lower and there was no need to plan for the long term. But now with increasing life expectancy and rise in the nuclear family culture, it has become more important for us to save for ourselves rather than depending on our Children or the Government.
When it comes to money management, it is indeed difficult to infuse the savings habit if we are a firm believer of You Live Only Once ideology. Nevertheless, savings is important even if your mind stays more on spending rather than putting the money away for your goals. But as they say there is a solution to every problem. All you have to do is to trick your mind into savings. Here are a few tricks to nudge yourself towards th…
Post a comment
Read more

Should you start Big when it comes to your investments?

The other day I met a Startup entrepreneur who was just talking about the importance of starting and that also starting big. As per him, a small game or investment had more chances of failure in comparison to playing big. I could understand being an entrepreneur myself that he is only thinking about launching big obviously with the backing of some deep pocketed private equity firm. But hey, I have also seen start ups who started small and made it big eventually slowly and steadily step by step. Same is the case when it comes to investments. Should we start only when we have a big chunk sitting in our bank account or should we start small in systematic manner slowly accumulating our wealth. Let’s hear out some benefits of investing regularly rather than waiting to strike gold with the larger chunk of money.
1.Less fear of markets If you are a regular investor who invest systematically, you don’t need to time the markets as your investments are going to the markets in regular manner wi…
1 comment
Read more