scorecardresearchInvesting to save tax? Pursue financial goals instead, say wealth advisors

Investing to save tax? Pursue financial goals instead, say wealth advisors

Updated: 26 Apr 2023, 12:18 PM IST

With new income tax regime coming into force, opting for an investment scheme to save tax is not a rational thing to do. Investors should take investment decisions in order to achieve financial goals.

 Investors can achieve their goals by creating a well-rounded portfolio

Investors can achieve their goals by creating a well-rounded portfolio

When you deliberate over choosing between different investment schemes, the key criterion — ideally — should be to achieve your long-term financial goals, instead of wanting to save taxes. Although the latter comes as an added incentive but with or without this, taking sound investment decisions is key to achieving financial goals.

Some of the goals are short term or medium term such as buying a car or a house, whereas a few are long term such as funding higher education of children and retirement.

So, it is unlikely that investors can achieve their goals without creating a well-rounded portfolio which includes debt, equity, fixed deposits, gold and alternative assets.

In other words, one should invest in equity because it is a sure-fire way to build wealth over a long term, in debt because they are safe instruments and help you hedge against risky investments, in real estate because you want to acquire a fixed asset.

Likewise, you may want to invest in PPF/NSC/ tax free FDs to earn high return on fixed income instruments and in National Pension System (NPS) to save for retirement – instead of wanting to save income tax alone.

The new tax regime

As we know, the new tax regime does not allow taxpayers to claim deductions and exemptions while levying lower rates of taxes. This brings to question the motivation to make an investment without any accompanying tax incentive.

But financial advisors believe that it is the investment goals that should determine investing decision and not the tax incentive alone. The experts assert that tax laws keep changing but financial planning should not be changed as frequently, however, some minor tweaking may be required.

“Investments should always be directed by personal financial goals, macro conditions, and product specifics. Tax incentives are a small part of their ‘product characteristics’. Tax laws keep changing. That does not mean that the investment plan should change. Some fine tuning is needed for selections that were made only because of tax incentives,” says Renu Maheshwari, a Sebi-registered investment advisor, and CEO of Finscholarz Wealth Managers.

Huge returns

Aside from tax incentives, investors can opt for investment schemes for the reasonably good returns they offer. After all, the returns delivered by some of these schemes which, hitherto, offered tax incentives, are still reasonably good.

Consequently, one can consider investing in them regardless of tax benefits.

For instance, ELSS funds, as a category, delivered a return of 25.26 percent per annum in the past three years, shows MorningStar data as on April 24.

Also, small savings schemes offer a return that ranges between 7 and 8 percent per annum.

PPF, for instance, offers a return of 7.1 percent per annum, NSC gives a return of 7.7 percent (after the latest hike), Kisan Vikas Patra 7.5 percent, Senior Citizens Savings Scheme 8 percent per annum and Sukanya Samriddhi Account 8 percent per annum.

Aiming for financial goals

Some experts argue that investors should make investment for their own financial planning and their goal and objectives should be crystal clear.

They should know how much they need to invest in order to achieve the financial goal rather than to save taxes, says Sridharan Sundaram, a Sebi-registered investment advisor and Founder of Wealth Ladder Direct.

“Investors should know why they are investing rather than last minute investment because the company is pushing them to invest in certain avenues in order to save taxes,” he says.

While giving a reference of saving for retirement, he says that a young investor makes investment to accumulate money for retirement.

“The investors should be aware of the fact that at 25 their goal is very achievable and if they start late, it increasingly becomes more difficult because they have to invest a higher amount,” he says.

In conclusion, we can state that investors should opt for an investment scheme if it aligns with their financial goals and not only because it gives tax incentive.


Tax saving FDs.
First Published: 26 Apr 2023, 10:52 AM IST