How to Invest your funds wisely this tax saving season!

Introduction

Considering the highly unpredictable nature of our lives in the 21st century, saving money now has become more imperative than ever before. Cutting down on taxes is a major way to save money for the future.

This article gives you an overview of the three most tax-friendly and safe investment mediums where you can park your money in this tax-saving season, and helps you pick the best.

a). Fixed Deposit

A fixed deposit is one of the best investment mediums to save tax and earn higher returns on your investments. Fixed deposits are of two types – Housing Finance Company FDs, and Bank FDs.

As banks are much bigger entities than housing finance companies, they are more vulnerable to bad loans, governmental regulations, and market-driven interest rate fluctuations. Going by the latest trends, bank fixed deposit interest rates are on a perennial downward curve.

Housing finance companies, on the other hand, cater to the high-growth real estate segment, which hardly bears the brunt of recession. As a result, any HFC’s fixed deposit interest rate is generally much higher than bank FDs. Also, no TDS is deducted on interest up to Rs. 5000 in a year. A CRISIL FAA-rated fixed deposit is as safe as an FD in a government-run bank.

b). Public Provident Fund (PPF)

PPF is a guaranteed saving instrument offered by the Government of India. You may open a PPF account at a public sector bank or post office. It allows you to save taxes of up to Rs  1.5 lacs in a financial year. However, you cannot withdraw the entire invested amount before 15 years from the date of account creation.

c). Life Insurance Policies

Unlike fixed deposits or PPF, a life insurance policy serves a dual purpose. It allows you to save taxes up to Rs. 1.5 lac and provide insurance cover in the event of accident or loss of life.

Unlike fixed deposit products, life insurance policies are varied, and understanding the nuances of various policies may require expert knowledge. It is much like opening every oyster shell to find out which one has a pearl in it.

Which Tax-Saving is the Best For You?

Answering this question is not an easy task. It depends on your financial objectives. However, for all practical purposes, a fixed deposit offers maximum convenience.

The following reasons make a fixed deposit more popular than other investment mediums:

1. High Safety

A CRISIL FAA-rated fixed deposit is a benchmark for safety and security.

2. High Rate of Interest

Housing finance companies offer fixed deposit interest rates of up to 8%.

3. Digital Account Opening and Closure

Most fixed deposits are completely digital, which means you can create and close an account without ever visiting a branch.

4. Auto-Renewal Facility

Unlike PPF or life insurance policies, FDs get automatically renewed, unless you specify otherwise.

5. Doorstep Delivery

Some financial institutions offer doorstep services for people who are not comfortable with computers or smartphones.

6. Liquidity

A fixed deposit is a liquid financial instrument, which means you can withdraw the entire amount in case of an emergency.

7. Facility of Loan

You can apply for a loan of up to 75% of the principal amount.

Conclusion

The best time to save taxes is now. Compare a few financial institutions and choose the product that comes loaded with the best features.

Originally posted 2020-05-20 13:07:25.