The financial year is nearing its end. Many of us have started investing in different plans to save some tax. But some of us do not even know the repercussions of last-minute planning. Investments done in a hurry might turn out to be a disaster rather than a boon. So, it is better to start tax planning at the beginning of the year. Do not keep it for the last minute. Do not invest only to save tax. Every investment holds an important place in your financial planning list. Hence, consider every one of them based on your financial goals. Make sure to look at the return and flexibility they offer.

When you make your tax-saving plans in 2017, avoid these mistakes:

  • Taking too little risk with investments:

We know that equity investments can give better returns in the long term. But we continue to invest more in fixed-income investments. These include tax-saving fixed deposits, PPF, and NSC to avoid market risks. Have you completed the debt part of your financial planning? Then there is no point in investing too much in debt schemes. Consider investing in equity-linked savings plans and unit-linked investment plans too. These can give you tax benefits as well as good inflation-adjusted returns in the long run.

  • Not considering the comprehensive picture of tax exemptions:

Many of us concentrate only on investments under Section 80C of the IT Act. But many other sections provide tax exemptions and deductions, too. For instance, interest payments on loans taken for higher studies enjoy tax deductions under Section 80E. Education and personal loan interest rates are cheaper. It is also easy to get instant approval for them. You can also consider buying a home. The government is focusing more on its ‘Housing for all’ agenda. So, the Union Budget 2017 may give higher tax breaks for housing loans.

  • Not backing asset allocation:

A regular rebalancing of the asset mix is an important aspect of financial planning. Keep in mind the volatility, of course. It is important to choose tax-saving investments based on your asset allocation. Stick to your asset allocation to control the risks and returns. Diversify your investments for better returns. This will help you achieve both short- and long-term financial goals. Following asset allocation brings discipline to investments.

  • Treating insurance as an exclusive tax-saving investment:

An adequate insurance cover is very important. Many of us buy these every year only to save tax. These are easy-to-do last-minute investments. Many endowment plans offer triple benefits. These are life cover, loyalty benefit, and tax benefit. But you will end up in a long-term commitment by buying them every year. Many people even stop paying after three years. These then turn into paid-up policies. This will definitely not serve the purpose of long-term planning. Insurance offers great tax benefits. But invest according to your needs and future goals.

The bottom line

To sum it up, it is important to treat the tax-saving exercise as a vital financial planning tool. Plan your taxes right from the first month of the financial year. Identify the right investment option based on your financial goal and risk appetite. Think beyond tax. Invest in products that can also build you wealth in the long run. Spare a thought before investing. Think for the long term and invest according to your financial goals.