On account of the havoc caused by the COVID 19 pandemic, the government has extended the tax-related compliances deadline, including that of making tax saving investments for FY19-20, to June 30, 2020.
This extension, from the previous deadline of March 31, 2020, has given investors the golden opportunity to balance their portfolios in accordance with the prevalent market conditions, by investing in suitable tax-saving investment plans.
Rebalancing your profile involves moving around your profits from outperforming investments to the assets that are under performing. It also entails changing your allocation ratios in line with the change in market conditions.
Here are some tax saving investments that you can consider to save tax for FY 19-20.
#1. Equity Linked Saving Scheme (ELSS)
ELLS comes with a lock-in period of 3 years. As a result, if you opt for a ELSS online investment today, by the time the lock-in period is over, the market would have had adequate time to bounce back.
In addition, investing in ELSS offers you the opportunity to invest in stocks of big companies at affordable prices as well as availing tax benefits.
The dual benefits of wealth creation in the long run, as well as savings on taxes, makes ELSS one of the best tax saving investments.
#2. Unit Linked Insurance Plan (ULIP)
Unit Linked Insurance Plans are great for trying your hand at equity-linked investments while also enjoying the cover of life insurance.
They are also great for wealth creation in the long term. With a minimum lock-in period of 5 years, ULIPs ensure that you are covered financially and are prepared for any uncertainties that may arise.
Unit Linked Insurance Plans are ideal for long-term investment and therefore, should be considered while working on a suitable investment strategy.
Based on your risk appetite, financial goals, as well as preference, you can choose between Equity and Debt funds when it comes to investing in Unit Linked Insurance Plans. A combination of the two funds can also be bought to avail the best returns.
#3. Public Provident Fund (PPF)
Public Provident Fund or PPF, is another popular long term saving scheme. It focuses on accruing returns on investments induced by small savings. Opting to do an online investment in a Public Provident Fund can help diversify your portfolio.
A PPF is ideal for people who are risk-averse and wish to steer clear of volatility. It comes with a lock-in period of 15 years with an interest rate of 7.1 per cent (April to June 2020) which is compounded annually.
The tenure can be further extended by five years, and there is also scope for partial withdrawal of funds.
#4. National Pension System (NPS)
The National Pension System or NPS is a simple, flexible and portable investment option. NPS is regulated by the PFRDA (Pension Fund Regulatory and Development Authority) and involves the lowest maintenance costs.
This benefit of low cost combined with the power of compounding, over a long period of time, allows for significant wealth creation for long-term goals such as retirement.
Unlike other investment plans, the lock-in period for the National Pension Scheme is till retirement, and it comes with an interest rate of 12 to 14 per cent.
Wrap Up – Tax Saving Investments
The extension in the tax saving deadline presents a remarkable opportunity to align your investment options in conformity with the shift in the market due to the crisis.
A prudent mix of both fixed income and market-driven returns, depending on the financial goals as well as the risk appetite can help you attain a more balanced portfolio for the present as well as the future.