Exhausted your PPF limit? Here are some other tax-efficient investment plans that you may try
Public Provident Fund (PPF) is one of the best investment options with tax deductions up to Rs 1.5 lakh u / s 80C of the Income Tax Act, along with tax-free interest and maturity as well. As a result, it falls under the exempt, exempt, exempt (EEE) category of investment.
Apart from the tax benefits, PPF also enjoys sovereign guarantee and higher rate of interest than the prevailing FD (fixed deposit) rates.
So, even if the tax deduction limit of Rs 1.5 lakh u / s 80C gets exhausted, PPF still offers a great investment opportunity, especially for risk-averse investors.
However, PPF has a cap on maximum investment, which is currently Rs 1.5 lakh per investor in a financial year.
So, once the PPF investment ceiling is reached, an investor has no option but to look for other investment opportunities.
Some of the other tax-efficient investment options that may be explored are –
Unit Linked Investment Plans (ULIPs) are the investment plans that offer insurance cover along with the benefit of market investment. Although ULIP investments are completely tax free and there is no cap on maximum investment as such, the mortality charges and higher expenses, charged through deduction of units, take the shine off.
The National Pension System (NPS) also provides an opportunity for tax-free investment. NPS also provides an investor the flexibility to choose the extent of equity, debt and bond to be included in the investment portfolio by choosing the type of fund out of the three categories.
However, the restriction of investing at least 40 per cent of the maturity amount in an annuity scheme provided by IRDAI-regulated insurance companies makes it less flexible.
Mutual Fund (MF) schemes provide tax-efficient return in case of long-term capital gain (LTCG) at the time of redemption.
In case of equity-oriented MF schemes 10 per cent LTCG tax is levied on the gains in excess of Rs 1 lakh in a financial year, provided the unit are sold after one year from the date of investment. The Equity Linked Savings Schemes (ELSS), however, has a lock-in period.
While in case of debt-oriented MF schemes, 20 per cent LTCG tax is levied after indexation, provided the units are sold after three years from the date of investments.
Even as investments in equity-oriented funds are considered long term after one year from the date of investment, to reduce market risks, one should invest only that part of money, which may be spared for a long period.
As debt funds invest in instruments with predefined maturity value, such funds are subject to lesser market risks compared to equity-oriented funds.
Thus, investors having moderate risk appetite may consider investing in Equity Savings Funds having equity allocation restricted to 20-45 per cent for a period of around 1-3 years for better stability and the benefit of return on equity.
Public Provident Fund (PPF) is one of the best investment options with tax deductions up to Rs 1.5 lakh u / s 80C of the Income Tax Act, along with tax-free interest and maturity as well. As a result, it falls under the exempt, exempt, exempt (EEE) category of investment. Apart from the tax benefits,…