One’s personal finance situation changes with age. As a young earner, Kavish needs to save and invest, but it is likely that his short-term needs would eat more into his income. By locking his money into long-term tax saving products, he might be making a mistake. He may find it difficult to keep up the investment required, or draw on it when needed. This common mismatch, especially for young investors results in dormant PPF accounts, discontinued subscriptions and missed premium payments. If Kavish tries to access the money during times of need, he is likely to face penalties, lower realisation values or high costs. What he does to save taxes should, therefore, fit within his overall personal financial situation and needs.
Tax planning is an integral part of financial planning, but should not be the key driver of one's investment decisions. Once Kavish figures out his financial plan, putting aside money to make the most of the available tax breaks would be easier.
For investors like Kavish, liquidity needs may be higher due to unexpected expenses at the early stage of his life. Tax-saving products come with lock-ins during which time they cannot even be pledged to raise money. He may need a term insurance much more than a Ulip; health insurance coverage more than retirement planning. Tax saving alone should not determine what he chooses to do. It might be a wiser thing to actually pay the taxes and retain the flexibility.
(The content is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
Read More News on
(Your legal guide on estate planning, inheritance, will and more.)
Download The Economic Times News App to get Daily Market Updates & Live Business News.
Read More News on
(Your legal guide on estate planning, inheritance, will and more.)
Download The Economic Times News App to get Daily Market Updates & Live Business News.