People tend to have this nasty habit of thinking of saving taxes only at the eleventh hour….
Insurance Policy and more often than not, since the investor is in a hurry and desperate to close the issue, does not bother to think whether the product fits into his Financial Planning.
That’s the reason JEEVAN VRIDDHI of LIC is selling like hot cakes.
Just a little bit of thinking will make it possible for you to do both tax planning and long term financial planning together.
The answer is Equity Linked Savings Scheme from the Mutual funds. Also knows as Tax Planning Schemes, these schemes qualify for Tax Deduction under Sec 80C. ELSS has the lowest lock-in period of just three years among all tax saving instruments available under section 80C. The icing on the cake is that no tax is levied on the long-term capital gains from these funds.
Please read this http://goodfundsadvisor.blogspot.in/2009/12/saving-taxes-elss-is-best-option.html
WHAT ABOUT THE RETURNS??
Investors generally prefer traditional debt instruments for tax saving. While these may provide safety and stability, they fall short of generating higher inflation adjusted returns over the long run.
For example, instruments earning 9% rate of interest when average inflation is around 9% will yield 0% real rate of return. Hence, investors willing to take some amount of market risk may look at equity linked investments via mutual funds for the long term. This asset class has historically provided high returns over longer periods.
The S&P CNX Nifty has returned over 16% in the 10-year period ended December 30, 2011, almost double compared with around 8-10% yielded by tax saving debt instruments.
Among equity tax saving instruments, ELSS, ULIPs and the equity option of the NPS are available for investment. The lock-in period for ELSS is three years, for ULIPs, it is five years, and NPS, has a lock-in period till 60 years of age.
Like most equity funds, ELSS funds also tend to be volatile in the short term but have the potential to help investor generate wealth in the long run. Their wealth generation potential along with the compulsory minimum investment period of at least 3 years makes it a great investment option for investors looking to benefit from tax deductions under Section 80C.
Do not take a hasty decision in the eleventh hour. Go through my other posts about Tax Planning Schemes and you will be able to zero in Good Funds which you can look at.
My picks would be
Religare Tax Plan
HDFC Tax Saver
L&T Tax Saver Fund
Fidelity Tax Advantage
CanRobecco Equity Tax Saver
Best of luck,