Tax saving is crucial to financial planning, but choosing an instrument or investment scheme on the basis of tax benefits is a poor decision. It’s, therefore, important to understand the purpose of a financial product. Investment decisions must always be based on financial goals, risk appetite, and time that you want to dedicate to it.

Here are some common mistakes, when your focus is only on tax savings:

1. Not starting early:

All financial planning and investments should be done in April(beginning of financial year), and not in March. Dodging decisions till the n-th hour is not just a financial liability, but also reduces the returns on investments, and your long-term goals.

2. Compromise of personal financial goals:

Most tax saving schemes come with a lock in period, and often investors sign up for it without taking into consideration the tenure, exit load or understanding the instruments in long term.

3. Purchasing higher than can be maintained:

While every Indian household dreams of having their own home, often in a bid to save taxes via 80C and 24B- investors consider this as an option, without realizing the immediacy of financial liability it may result in. Purchasing a property is a long-term commitment and it should either serve its purpose as an investment or fulfil your purpose of stay.

4. Overboard with Insurance:

People tend to buy multiple health and life insurance policies in order to save taxes just because insurers quickly process the premium receipts you need at the end of the year. This approach is wrong, for two reasons: one, you invest in wrong products, and two, buy the cover of an inappropriate amount.

Financial planning should come first before tax saving. And the right time to finalise investments is in April, and not March (end of financial year). Explore all avenues to save taxes and how much more you need to invest, in order to fulfill long term goals. Instead of making tax-saving investments at the last moment, it is better to spread the amount throughout the year to avoid stretching your finances.

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DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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