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8 Most Common Mistakes to Avoid While Planning Investments for Tax Saving

In the name of building wealth and protecting the assets, many fail at becoming successful investors through a few common mistakes.

Such as ignoring inflation, or not saving enough, incomplete understanding of insurance, or lack of effective planning.

To ensure maximum benefits from investments, a salaried individual needs to start planning right from the beginning of the financial year.

But before planning, salaried individuals should be aware of the income tax slabs for a salaried person to streamline their investment and also look out for mistakes to avoid in order to save taxes accordingly.

Therefore, let’s look at the mistakes to avoid while planning investments for tax savings.

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Mistakes to Avoid while Planning Investments for Tax Saving

Avoiding these mistakes ensures you get the maximum benefit from tax-saving provisions and your investments add value to your portfolio.

  1. Not ensuring there is enough liquidity of assets – Long-term investments are recommended as they give a better return on investment. Investing to save tax is not synonymous with making your funds untouchable for a few years. You should consider your flow of income before deciding what to invest in. You should have some assets that can be liquidated immediately in case of any unfortunate incidents. Mindful investments ensure you and your family do not suffer despite having funds in a time of need.
  2. Inadequate Planning of investments – Planning should be done thoughtfully and to gain the maximum benefit. You should start planning at the beginning of the financial year to avoid financial burdens in the last quarter. This also ensures you get the maximum returns on the invested money throughout the year. On the other hand, if you are thinking of putting a lump sum amount in your PPF account, it can be done at any time of the year. You should consider doing this after the annual bonus or any arrears.

For instance, ELSS is a popular investment choice. It should be done at the beginning of the year to ensure you get the interest on your investment throughout the year.

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  • Compromising on Insurance policies – Insurance policies bought for the protection of loved ones should be bought considering the maximum benefits instead of tax-saving opportunities. The primary motive to buy insurance policies should be the convenience and relieving yourself of financial burdens in a crisis. For example, a life insurance policy should provide your family financial assistance for the untimely death of the insured. Similarly, a Health insurance policy ensures medical coverage rather than just focusing on saving tax. Because health is much more valuable than saving taxes.
  • Misunderstanding ELSS & its recent trends – There are various schemes in ELSS (Equity Linked Saving Scheme) which you can invest in. The schemes that gain momentum don’t necessarily pay off well in the long run. You should consider the schemes that have consistently ensured profits for the investor.

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  • Not choosing investments wisely – Making hurried decisions might cause you to invest in the wrong scheme. Ensure you have read and you understand the terms and conditions of your investments. Making wrong investments ties up your capital and might not help you achieve your financial goals.
  • Failing to meet future financial goals – A lot of long-term investments lock up your money for a long time. You can look at other options if you have short-term goals. Looking at tax saving by investing in your future is more beneficial than counting the momentary benefits.
  • Neglecting returns on investment options – Every scheme depending on the risk and the commitment time, has a different rate of return on investment. Some investments like life insurance and health insurance may not provide any return but give you protection in time of need.
  • Investing with limited knowledge on the subject – A thorough knowledge of your benefits is essential to ensure you save maximum. There are a lot of sections under which you can save and that may apply to you. You can be aware of these by reading about them online.

These guidelines will help you identify the places where you can save tax and the things you can invest, you can save and you can plan accordingly for the next financial year as well.

Enjoy the tax reductions responsibly and make the correct choice for yourself by ensuring you are informed about your rights & responsibilities.

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