- Do not invest in an instrument just for the tax-saving benefit. Try to identify the role of every financial instrument in the overall scheme of your financial plan
- It is crucial to analyze our liquidity requirements before investing a significant sum in tax-saving products considering lock-in periods
- When you are investing last minute, there are chances you might make operational mistakes while investing
This is that part of the year when you have to make all those investments so that you can save as much tax as possible, isn’t it?
But have you realized that tax planning is much more than just saving your salary from the tax liability? If done smartly, your tax planning can fetch you excellent yields over a period. Unfortunately, many among us just rush through this process because all we want to do is just save tax. We don’t give sufficient thought to things that can go wrong at the last minute while doing tax planning.
These are the things that could go wrong:
Choosing the wrong product
There are just a couple of months left to declare your investments, so you just don’t care to evaluate which financial instrument works best for you. You are just eager to sign the cheque, assuming the investment fits your budget, and move on. You probably did not care to check whether this product gives you benefits which are relevant to you. You may or may not realize the loss you incur while signing that cheque, just to save tax at the last minute.
You could invest in several tax-saving solutions but being a last-minute tax saver, you might not factor in the taxes on returns and end up losing out part of your gains.
The best way to avoid product trap is to avoid last minute rush. Do not follow friends or family when it comes to tax-saving products. Do your own research and make the most suitable choice. Asset allocation plays a pivotal role in fulfilling your financial objectives. Tax-planning shouldn’t be done in isolation. It is ultimately a part of overall financial planning. Therefore, do not invest in an instrument just for the tax-saving benefit. Try to identify the role of every financial instrument in the overall scheme of your financial plan.
When investing in tax, several products have long lock-in periods. It is crucial to analyze your liquidity requirements before investing a significant sum in such products. A good tax plan will blend investments and insurance, such that your portfolio offers liquidity, savings, returns as well as protection.
Investing the entire tax deduction amount in something that locks your money long enough may cause you liquidity crunch when you are in need of funds.
When you are investing last minute, there are chances you might make operational mistakes while investing. For instance, you invested in a product and missed signatures on the form. What if, you issued a cheque towards a tax-saving investment on March 30 and for some reason, your cheque got cleared on the next day. And what if you are unable to claim tax benefits for the year? Not only does your effort go waste, but you also lose out on the tax-break just because you waited for the last day to arrive to make your investment.
Similarly, avoid this last minute habit. It could burn a big hole in your pocket for having to forego your tax benefits or for locking your self into a product that doesn’t meet your requirements.