Financial decisions

Better late than never: Financial decisions you should take now

Most individuals run around in February- March every year to complete their tax savings investments and then forget about money and taxation when the new financial year starts in April. NOW is that time of the year when you should start investing for next financial year slowly & steadily so that you don’t have to make massive end of year investments again. Do not let income tax and money management take the back seat once you enter April.
Here are some financial decisions that you should make now.

1. Open a PPF account: Public provident fund (PPF) may appear to be the least glamorous thing to do when the stock indices are touching new high but it is one of the safest and most effective savings corpus for retirement. Invest in the first five days of every month to maximize the interest on your investment. If you invest at the beginning of the year you enjoy the interest for the entire year whereas if you invest towards the end of the year you miss on the interest earning opportunity. For the quarter April-June 2017, you are offered tax free interest at the rate of 7.9%/year in addition to the tax deduction up to Rs 1.5 lakh/year u/s 80C of the Income Tax Act. Given its Exempt-Exempt-Exempt status it is one of the best & highest post tax income avenues on offer.

2. NPS: National Pension System (NPS) makes a strong case given the low charges and the exposure it offers to stocks, bonds and government securities. It helps you to build your retirement corpus over your working life. You can buy an annuity from an insurance company after you retire from the proceeds of NPS account. If you are below 35 years, go for ‘auto ‘option in NPS which enables you to invest as high 75% in stocks. Over a period of time the exposure to stocks is reduced and ends up creating large corpus for the investor by the time you retire. One can enjoy tax benefit for an investment up to Rs 50,000/year in addition to section 80C. The Government has allowed tax exempt withdrawal of money up to 40% of NPS account balance at the age of 60. The latest budget also proposes for a tax exempt withdrawal of 25% of the money before retirement.
3. Do a SIP in ELSS: Investments in tax saving mutual funds, technically termed as equity linked saving schemes (ELSS). The best way to invest in tax saving fund is through systematic investment plan. If you start in April, you get enough time to invest in ELSS through SIP and benefit from rupee cost averaging. In the long run markets will always give good returns so you should stay invested and continue your SIP especially in bad times for rupee averaging. Given the lock-in period of 3 years this encourages long term savings required for retirement.
4. Sukanya Samriddhi Yojana: Aimed at creation of corpus for well-being of a girl child, Sukanya Samriddhi Yojana (SSY) makes a smart investment option for you if you have a girl child below 21 years of age. You can open an account in your daughter’s name and invest money every year. You get 8.4% tax free rate of interest on your investments in SSY as of now. Contributions to SSY are also eligible for tax deductions under section 80C.
5. Insure adequately: Buy adequate amount of life, health and personal accident insurance cover. Remember if you are the sole earning member of your family adequate insurance cover for your family and dependents though a term plan is a must. Given current medical expenses adequate health insurance cover is also essential irrespective of whether it is offered by your Company.
Start investing early to give more time to your money to compound and grow for you. Define your financial goals as soon as possible and save money as per your asset allocation every month.
Money moves that help you retire early…

Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata. He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’ 

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