In this time of bearish markets, many investors may not like to go with the tax saving instruments having much or any kind of equity exposure.
As the coronavirus outbreak has battered the market badly, with the BSE Sensex shedding nearly 12,000 points over a couple of weeks, should investors stick to their investments in equity-linked tax-saving instruments?
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In such circumstances, many investors might be confused about their investments in market-linked financial products .
Over the years, Equity Linked Saving Scheme (ELSS) have become a popular tax-saving instrument among the savers. Experts say one should still invest in ELSS looking at historical data.
“Investors should keep in mind that interest on debt instruments available for tax planning is also coming down and may remain low for some time. Even after massive sell-off, that is majorly a health-related panic sell-off, there are quality ELSS schemes that haven’t eroded the capital considering the NAV of March 18, 2020,” says Omkeshwar Singh, Head of Rank MF, Samco Securities.
ELSS , Unit Linked Insurance Plans (ULIPs) and National Pension System (NPS) ( up to 50 percent) invest in equity or equity-related schemes.
Depending upon the risk appetite and flexibility, the required option for tax planning can be chosen.
Non-market-linked tax-saving instruments:
Investors who are looking for options that are not linked to the market to park their money for tax saving can, however, consider investing in five-year tax-saving FDs in bank, Public Provident Fund (PPF) or National Saving Certificates (NSC).
“These are not linked to stock markets and give fixed returns,” explains Ankur Choudhary, co-founder & chief investment officer, Goalwise. Taxpayers should also consider other features such as lock in, taxability of interest, etc. while choosing investment options, he added.
"The interest on PPF is exempt while for FDs it is taxed in investor's hands. The interest on NSC is allowed as deduction within the overall limit of Section 80C. Besides, PPF has a lock in of 15 years but NSC and FDs have a lock in of 5 years," explains Sandeep Sehgal, Director, Tax and Regulatory, Ashok Maheshwary & Associates LLP.
One can also buy health insurance and save taxes. Investors can avail income tax exemption under Section 80D, based on the premiums paid on these policies. Health insurance also safeguards the investor and his family during medical emergencies by covering the cost of the treatment.
First Published: IST