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Start planning taxes early to get maximum returns

Last-minute rush to save taxes makes investments prone to mistakes, losses

It's that week of the year when a large number of people rush to put money in a handful of investment products which allow investors to lighten their annual tax burden. This is because every tax saving option for the current financial year would expire on March 31. To take this opportunity of huge aggregate investments from the last-minute tax savers, the sellers of these products, like mutual fund houses, insurance companies, investment intermediaries and agents also push such products. This is a situation that is repeated year after year.

However, as a tax payer who also has investment needs, you should not wait for the last-minute window of opportunity to save taxes. Rather, taxpayers should always make a plan to save taxes at the beginning of the fiscal, that is in April itself, financial planners and advisors say.

There are several advantages of planning to save taxes early in the year. One could start a monthly systematic investment plan (SIP) in an equity-linked savings plan (ELSS) in April itself and continue it through the year. SIP inculcates investment discipline and has the potential to give returns which can beat the inflation over the long term. It also allows the investor to reap the benefits of rupeecost averaging, that is you buy more when the price is
low and less when prices are high, averaging out your cost of acquisition. In comparison, if you invest a lump sum amount, you may not have got the best price to invest in that ELSS.

Another advantage relates to public provident fund (PPF), one of the best tax-efficient fixed income products available in the market. In PPF, if you put money on April 5 or earlier, you get the interest for the full year. But if you put money on any day after April 5, the interest accrues to your PPF account only from the next month, that is from May.

Another phenomenon seen among these last-minute savers is they usually invest to save taxes rather than invest for themselves. For every person who is saving, the primary objective should be investing, and tax savings should be an incentive. Tax saving should not be the primary objective. So naturally, if one starts investing from the beginning of the financial year itself, you would look at the investment angle first, and chances are that tax savings would happen smoothly, through the next 12 months.

There are some disadvantages of starting to save taxes at the last moment. For one, according to Kothari, in case there are some signature mis-matches or a cheque that you gave with the investment-related form bounced, you are unlikely to have a second chance at the last hour and would end up paying higher taxes than ideally you should have.
In their last-moment rush, investors often end up committing several mistakes, some are errors of judgment while some because

of the rush to invest they miss the fine points if investment products they are investing in. In some cases, investors just end up being gullible to distributors and agents who are only out to make money selling products which may not be the best fit for their risk profile.

Common tax-saving instruments

•Equity Linked Savings Scheme

•Public Provident Fund

•National Savings Certificate

•Insurance policies

•Tax-saving fixed deposits
Common mistakes in last-minute investing

•Low-risk investors opting for high-risk investment products

•Buying a new policy each year when paying premium on the old one would suffi ce

•Investing in a low-return policy that gives the agent a fat commission

•Investing in multiple tax-saving products with aggregate amount exceeding the threshold limit

•Buying a market-linked product at a high price just because everyone else was doing the same

•Missing out on investments that offer higher post-tax returns, even if they don't save taxes

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Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

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Tax Saving Mutual Funds Online

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Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

1. ICICI Prudential Tax PlanInvest Online
2. HDFC TaxSaverInvest Online
3. DSP BlackRock Tax Saver FundInvest Online
4. Reliance Tax Saver (ELSS) FundInvest Online
5. Birla Sun Life Tax Relief '96 Invest Online
6. IDFC Tax Advantage (ELSS) FundInvest Online
7. SBI Magnum Tax Gain Scheme 1993Invest Online
8. Sundaram Tax SaverInvest Online
9. Edelweiss ELSS Invest Online

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