Best investment options for tax benefits and financial security

It is important to direct your money towards options that not only promise a great investment portfolio, but also offer better financial security.

Starting a new year isn’t complete without the ritual of making resolutions, and making better financial decisions is arguably high on the list. Tax benefits are a major component of financial planning because they are a great first step towards saving money. Usually, tax savings don’t show up on most people’s radar until the deadline looks them in the face. However, it’s always best to think ahead so that you can meticulously plan your financial future over the year.

It is important to direct your money towards options that not only promise a great investment portfolio, but also offer better financial security. This is why investment and insurance products appear to be a great option in which to invest. Considering the current market conditions, they not only offer higher returns but also save tax. Additionally, with the third wave of COVID gaining momentum, the insurance element of these products is expected to provide extensive financial security not only to the investor, but also to dependents.

Let’s take a closer look at the investment options to consider to save tax.

Unit-linked insurance plan (ULIP)

The characteristic that makes ULIPs popular among investors is the tax-free income that results from them. In particular, new generation or 4th generation ULIPs are very popular due to their transparent nature and low cost. The term of the policy varies between 5 and 30 years for these plans and the policyholder can choose to exit after 5 years or after maturity, and leave with a tax-free fund value. What’s more, they also provide better flexibility with the ability to easily switch funds between debt and equity as needed. You can get up to 12-15% return with these plans and they also save the policyholder tax savings under Sections 80C and 10 (10) D of the Income Tax Act. 1961 income.

In addition, the investor should make the most of the fact that investment in ULIPs is tax exempt for an annual premium of up to Rs 2.5 lakh in accordance with section 10 (10) D. Thus Investing at least Rs 2.5 lakh is a wise move compared to mutual funds where they will be subject to a 10% tax above Rs 1 lakh. ULIPs also offer efficiency of up to 12-15%. Therefore, if a 30 year old invests Rs 10,000 over 20 years, he can accumulate a tax-free body of around Rs 1 crore which will be taxable in the case of mutual funds.

Guaranteed return plans

Guaranteed return plans are best known for the financial security they provide to an investor’s hard-earned savings. They allow the policyholder to lock in their money for longer periods without worrying about market fluctuations affecting returns. However, these products are also great for tax savings. Guaranteed return plans have a built-in life insurance feature that is 10 times the annual premium. In addition, these premiums are eligible for a tax refund as well as the amount at maturity under section 10 (10D).

More importantly, they’re a much better bet than FD’s cut interest rates which currently stand at around 5% taxable. On the other hand, guaranteed return plans can earn you up to ~ 6% interest depending on factors like age and lock-in period. For example, if a 30-year-old man invests Rs 10,000 in the Tata AIA Fortune Guarantee Plus plan for 10 years, he can earn 5.92% tax-free interest and also get life coverage of around Rs 14. lakh, which is not available with FD.

Term insurance

Another important option for saving taxes and securing the future of your loved ones in these difficult times is term insurance. Premiums paid under the policy are exempt from tax under Sections 80C and 10 (10) D of the Income Tax Act 1961. The maximum limit here is Rs 1.5 lakh, and you can also save tax on policies purchased for parents, spouses, or children apart from self. Also, in the event of the unfortunate death of the insured, the sum insured given to the beneficiaries is also exempt from tax.

Children packages

It is always advisable to start early when it comes to investing in your child’s future. Many investors like to go for a safe and guaranteed option in such cases. This is where the unit linked child plans come in. You can start investing in these plans within 60 to 90 days of the birth of your child. The advantage of investing early is that you can have a larger body of work when you need it. The premium wave feature is yet another reason to opt for these plans as it guarantees payment of future premiums in the event of sudden death of the policyholder. The investor can benefit from tax exemptions under 80C of the Income Tax Act 1961, which allows a maximum tax exemption of Rs 1,50,000 per year for various children’s plans.

Depending on your needs and the factors that influence them, you can start planning early and carefully weigh your options. Remember to weigh your decision based on your tax system, income bracket, age range, and family size, among other factors.

(By Vivek Jain, Head-Investments,

Disclaimer: These are the personal opinions of the author. Readers are advised to consult their financial planner before making any investment.

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