People

This is how they saved on tax

MEERA SIVA NALINAKANTHI V | Updated on January 13, 2018 Published on February 26, 2017

These investors tell Portfolio where and how they invested this year



Fiscal year 2016-17 is ending in just a month. And rather than wait till the last week, tax payers are evaluating various tax saving investments. With wide-ranging options that qualify under 80C deduction — insurance, equity-linked savings scheme (ELSS), fixed income options such as NPS and EPF and expenses such as school fees — it helps to understand what is out there and pick what works for you.

When to invest?

If you want to invest in fixed income instruments — where the returns are clearly spelt out — investing early is the best thing to do. Kshitij Bhingare, who took up a job after completing his post-graduate programme in Management at IIM Tiruchi, does this.

“My PPF investments are done reasonably early in the year. Investing early enables one to benefit from the power of compounding,” he explains.

While investing at one go - be in fixed income or insurance schemes - is a popular option, some investors take a more systematic approach. This is particularly helpful for equities where timing the market is not easy. Regular investment helps spread the market risk and also plan monthly cash flows better.

Guruprasad S, who is an analytics professional working for a leading MNC Bank in Bengaluru,subscribes to this approach. He is a big believer in equities and invests in ELSS SIP spread out through the year. Likewise, Kshitij plans to take a similar route when making his debut equity tax saver investment in 2017.

Safe route

Your investment choice depends on your risk tolerance and comfort with a certain asset class. Take the case of Chennai-based Usha Narayanan who has been working for a public sector bank for almost two decades now. She bats for fixed return instruments such as National Savings Certificate to save taxes. “To me capital protection is more important than attractive returns,” she explains.

Her conservative approach is also due to a disappointing debut experience with the market. She has stayed clear of equities after a harrowing experience with a broker who persuaded her to try her luck with derivatives. “I prefer to invest in asset classes I understand well,” adds Usha. A lower lock-in period of five years for NSC gives her more comfort. She also has mediclaim and other insurance policies which also help her to reduce her tax outgo.

Besides tax saving, Usha’s overall asset allocation clearly explains her risk aversion. Nearly half of her investments are in fixed income securities. The balance is in real estate and gold. With her son pursuing higher education abroad, she prefers liquid and steady instruments such as FDs and NSC.

For risk-averse investors, the tax saving investment options are aplenty. You can choose from a wide range of schemes which include Public Provident Fund, NSC, Senior Citizen’s Savings Scheme, Sukanya Samriddhi Scheme and some bank FDs.

Equity bets

For those who are young, ELSS may be a great option to get started on equity investment. Guruprasad, who moved back to India a couple of years back after completing his management studies abroad, started out by first investing in mutual fund tax saver schemes. “I started investing in 2007 as part of my tax saving investments under 80C and slowly graduated to invest in direct equities in 2014,” he explains.

Being a stock market enthusiast, he allocates nearly two-thirds of 80C investments towards equity tax saver funds. He invests about 10 per cent of his surplus in Public Provident Fund (PPF). His overall asset allocation pattern is also tilted towards equity — about 60 per cent in direct equities, 20 per cent is in mutual funds. “To ensure liquidity and insulate my portfolio from market fluctuations I have parked about 20 per cent of the assets in gold and FDs” explains Guruprasad.

Given that Kshitij started working only last year, his insurance policies and EPF were adequate to cover his investment limit under 80C for this year. He plans to increase the equity component in the coming fiscal.

Well-advised

Kshitij takes the advice of his father, besides using publicly available information and data to do his own research. Being a finance graduate, Guruprasad does his own research and decides on the investments using publicly available data and information.

While evaluating equity tax saver schemes, here are three aspects that you need to look into. First, consistency of the performance — how many times in a year has the fund delivered returns higher than the benchmark? Second, prefer funds that have managed to contain downside well during volatile phases. Finally, the stability of the fund manager and his ability to identify themes and stocks ahead of others is critical to the fund’s performance.

Also, the reduction in the tax rate for the ₹2.5-5 lakh income slab — from 10 per cent to 5 per cent — announced in the 2017-18 Budget will leave more cash in the hands of these investors next fiscal. Usha plans to stick with NSC and other fixed income instruments. She is, however, open to considering investing a small portion in equity mutual funds. She asserts, however, that she will do so only after doing her own analysis and understanding the risks involved.

Young investors have also made up their mind. Guruprasad plans to invest most of the surplus money into equities. Kshitij is considering equity options in addition to his existing fixed income investments.

Read further by subscribing to

The Hindu Businessline

What You'll Get

  • Web + Mobile

    Access exclusive content of the Hindu Businessline across desktops, tablet and mobile device.


  • Exclusive portfolio stories and investment advice

    Gain exclusive market insights from the Hindu Businessline's research desk.


  • Ad free experience

    Experience cleaner site with zero ads and faster load times.


  • Personalised dashboard

    Customize your preference and get a personalized recommendation of stories based on your intrest.

This article is closed for comments.
Please Email the Editor