Public Provident Fund (PPF) is likely one of the greatest funding choices with tax deductions as much as Rs 1.5 lakh u/s 80C of the Income Tax Act, together with tax-free curiosity and maturity as nicely. As a end result, it falls beneath the exempt, exempt, exempt (EEE) class of funding.
Apart from the tax advantages, PPF additionally enjoys sovereign assure and better charge of curiosity than the prevailing FD (fastened deposit) charges.
So, even when the tax deduction restrict of Rs 1.5 lakh u/s 80C will get exhausted, PPF nonetheless presents a terrific funding alternative, particularly for risk-averse traders.
However, PPF has a cap on most funding, which at the moment is Rs 1.5 lakh per investor in a monetary yr.
So, as soon as the PPF funding ceiling is reached, an investor has no possibility however to search for different funding alternatives.
Some of the opposite tax-efficient funding choices which may be explored are –
ULIP
Unit Linked Investment Plans (ULIPs) are the funding plans that supply insurance coverage cowl together with the advantage of market funding. Although ULIP investments are fully tax free and there’s no cap on most funding as such, the mortality prices and better bills, charged by deduction of items, take the shine off.
NPS
The National Pension System (NPS) additionally gives a chance for tax-free funding. NPS additionally gives an investor the pliability to decide on the extent of fairness, debt and bond to be included within the funding portfolio by selecting the kind of fund out of the three classes.
However, the restriction of investing not less than 40 per cent of the maturity quantity in an annuity scheme supplied by IRDAI-regulated insurance coverage corporations makes it much less versatile.
Mutual Funds
Mutual Fund (MF) schemes present tax-efficient return in case of long-term capital acquire (LTCG) on the time of redemption.
In case of equity-oriented MF schemes 10 per cent LTCG tax is levied on the positive aspects in extra of Rs 1 lakh in a monetary yr, supplied the unit are offered after one yr from the date of funding. The Equity Linked Savings Schemes (ELSS), nevertheless, has a lock-in interval.
While in case of debt-oriented MF schemes, 20 per cent LTCG tax is levied after indexation, supplied the items are offered after three years from the date of investments.
Even as investments in equity-oriented funds are thought-about long run after one yr from the date of funding, to cut back market dangers, one ought to make investments solely that a part of cash, which can be spared for a protracted interval.
As debt funds put money into the devices with predefined maturity worth, such funds are topic to lesser market dangers in comparison with equity-oriented funds.
So, traders having average threat urge for food could take into account investing in Equity Savings Funds having fairness allocation restricted to 20-45 per cent for a interval of round 1-3 years for higher stability and the advantage of return on fairness.
Source: www.financialexpress.com”