Generally people make lot of research while making investments in Property, Equity Shares, Mutual Funds, Bonds etc  but when we talk on Section 80C investment for Tax Saving, people consider it as only tax saving expenditure on which they can save tax and get moderate return (6% – 10%) in due course. We even don’t bother to think that this money is also a part of investment which we generally invest and can generate dynamic returns. But usually people end up with low returns with the given traditional options (FDs, ULIPS, Bonds, NSC, NPS and other Government schemes) because these are easy to handle, no risk, and major “IT WILL SAVE OUR TAX” without affecting the principal amount.

Central Government has increased the limit of 80C from INR 1,50,000 to INR 2,00,000 and still people are not thinking on how to generate the handsome returns from this money.  The main reason is many of us are not aware about all the options available for tax savings which can give higher returns.

We sleep in the initial months on 80C investments and wake up when we get mail from HR to submit the Tax Saving Investment proofs. And at that time, lack of research and shortage of time period, we call up agents and end up with schemes having high lock in periods and low returns.

If we take out small portion of our relaxing hours and consider the various options, we can earn healthy returns along with saving of tax.

Here I am listing the various options available for TAX SAVINGs ( 80C) in an order where you can get high returns with low risk.

  1. MUTUAL FUNDS (ELSS or Equity-linked saving schemes) : Rating: 5/5

 

Return: High (18%-30%)

Risk: Moderate

Cost: Very Low

Lock in Period: 3 years

Return on Investment: Tax Free

 

ELSS has the shortest lock-in period of 3 years amongst all the tax-saving options under Section 80C of the Income Tax Act. And this is one of most important reason for investing in this avenue. But foremost reason for investing in ELLS is, being equity funds; these schemes can generate good returns for investors over the long term.

The minimum investment require in ELSS is INR 500 which is very low and there is no compulsion to continue investments in subsequent years as in ULIPS, pensions plans etc. To make most of ELSS funds, stagger your investment over a period of time instead of putting a large sum at one go.

One can start with SIP (systematic investment plan), where fixed amount will be invested every month and units will be credited in the account. This system (SIP) reduces the burden of last moment investment for 80C which is not available in any other plans.

It can be started with any bank by doing KYC with banks, get the online banking and start with your SIP. Process is very simple and time effective. No need to go anywhere, banks are providing this service at your door step.

 

Benefit: Short lock in period, high return, easy to manage, can invest in small portion on regular basis, low risk, return is tax free.

Shortcoming: NA

 

 

 

  1. FDs: Rating: 4/5

 

Return: Moderate (08%-10%)

Risk: Very Low

Cost: Nil

Lock in Period:  5 years

Return on Investment: Taxable

 

Although Tax saving FDs are having short lock in period of 5 years but still this is not attractive investment for 80C as compared to ELSS because of moderate return on investment and interest is fully taxable at the time of maturity.  If we compare the tax saving FDs of all the banks, the rate of interest is around 8.75% ( keep changing but not more than 10%), which is very low as compare to inflation. Apart from low ROI, earned interest is also taxable at the time of maturity.  So if one is falling in 20% or 30% tax bracket, the return will be around 7%.

But if someone wants to have short period and manageable return, can go for these FDs.

 

Benefit: Short lock in period and no risk for investment

Shortcoming: Low rate of interest and return is taxable

 

  1. ULIPS: Rating: 2/5

 

Return: Moderate (06%-15%)

Risk: Low

Cost: Low

Lock in Period: 10-20 years

Return on Investment: Tax Free

 

A ULIP is an investment tool, first and foremost, with a life insurance component attached. That alone allows you to claim income tax benefits against your ULIP premium payments, by way of both deduction and exemption. Why it is popular among people? – Because of its investment and insurance combination. People get returns as well as insurance.

Even though there is investment features in a ULIP and the investments could be in debt or even equity the amount received from this at the time of maturity is tax free in the hands of the receiver. This proves to be a big benefit as far as the overall policy is concerned.
Generally ULIPS give return around 6% to 15% depends on the NAV at maturity.

 

No doubt ULIPS are better than FDs in terms of returns and risk but maturity wise FDs have low maturity period of 5 years and in ULIP it is minimum 10 years.

 

Benefit: Moderate return

Shortcoming: High lock in period

 

  1. NSCs: Rating: 3/5

 

Return: Low – 8.80%

Risk: No Risk

Cost: Nil

Lock in Period: 5 years

Return on Investment: Taxable

 

National Savings Certificate is an Investment alternative developed by Government of India with an intention to induce persons to a saving habit and to develop National Savings. National Savings Certificate is issued through Post Offices; they are the nodal agency which makes it available to the common public.

National Saving Certificates in India is ranked as ‘highly secured’ in the class of Investments. It is an Investment’ which has Tax Advantage while (i) Investing, (ii) during the life and (iii) at the time of maturity of the Investment.

 

Benefit: No risk and short lock in period

Shortcoming: Low rate of interest, return is taxable

 

  1. PPF (Public Provident Fund)                                                   Rating: 3/5

 

Return: Moderate (08%-10%)

Risk: Very Low

Cost: Nil

Maturity: 15 years

Return on Investment: Tax Free

 

 

The PPF is an all-time favorite investment option and the Budget has only made it more attractive by enhancing the annual investment limit to Rs 1.5 lakh. The PPF offers investors a lot of flexibility. You can open an account in a post office branch or a bank. The maximum investment of Rs1.5 lakh in a year can be done as a lump sum or as installments on any working day of the year. Just make sure you invest the minimum Rs 500 in your PPF account in a year, otherwise you will be slapped with a nominal, but irksome, penalty of Rs 50. Though the PPF account matures in 15 years, you can extend it in blocks of five years each. The PPF is useful for risk-averse investors, self-employed professionals and those not covered by the EPF.

 

The PPF scores high on safety, taxability and costs, but the returns are not so attractive and liquidity is not very high. The scheme will give 8.7% this year, but don’t count on it in the following years. The interest rate on small savings schemes like the PPF is linked to the government bond yield and it is likely to come down in the coming years.

Though it is a 15-year scheme, the money isn’t locked for this period. You can make partial withdrawals from the sixth year or take a loan. The interest rate on a loan is 2 percentage points higher than the prevailing PPF
interest rate. For 2014-15, the rate will be 10.7%. Besides, the lock-in period depends on how long ago you opened the account. For those who started investing in the PPF 10-12 years ago, the effective lock-in period will be only 3-5 years.

 

Investors love the PPF because they get a tax deduction on the amount they invest. There is no tax on the interest earned and withdrawals are also tax-free. The only glitch is the annual investment limit, which has now been hiked. However, another instrument gives almost the same returns and tax benefits without imposing any investment limit.

 

Benefit: No risk, steady growth.

Shortcoming: Low rate of interest, return is taxable and high lock in period

 

  1. LIC: Rating: 2/5

 

 

Return: 8% to 15%

Risk: Very Low

Cost: Nil

Maturity: As per plans

Return on Investment: Taxable

 

 

Though the Irda guidelines for traditional plans have made insurance policies more customer-friendly, they are still the worst way to save tax. The tax saving is only meant to reduce the cost of insurance. It is not the core objective of the policy.

 

Benefit: Short lock in period and no risk for investment

Shortcoming: Low rate of interest and return is taxable

 

  1. NPS: Rating: 3.5/5

 

Return: High (10%-25%)

Risk: Very low

Cost: Nil

Lock in period: Till age 0f 60 years

Return on Investment: Taxable

 

The National Pension System (NPS) was launched by Government of India on 1st January, 2004 with the objective of providing retirement income to all the citizens. NPS aims to institute pension reforms and to inculcate the habit of saving for retirement amongst the citizens.

Every subscriber to NPS will be allotted a unique Permanent Retirement Account Number (PRAN). This unique account number will remain the same for the rest of subscriber’s life. This unique PRAN can be used from any location in India. It will provide excess to investment in two type of accounts:

 

Tier I Account: This is a non-withdrawable account meant for savings for retirement. (Tax benefit is available)

Tier II Account: This is simply a voluntary savings facility. The subscriber is free to withdraw savings from this account whenever subscriber wishes. No tax benefit is available on this account.

 

Low-cost structure, flexibility and other investor-friendly features make the New Pension Scheme an ideal investment vehicle for retirement planning. The scheme scores high on flexibility. The minimum investment of Rs 6,000 can be invested as a lump sum or in installments of at least Rs 500. There is no maximum limit. The investor also decides the allocation to equity, corporate bonds and gilts. Be ready for a lot of legwork before you can buy.

 

Benefit: No risk

Shortcoming: Low rate of interest, return is taxable and high lock in period

 

  1. Pension Plans: Rating: 1/5

 

Return: Low (08%-10%)

Risk: No risk

Cost: High

Lock in period: 5 years

Return on Investment: Taxable

 

The charges of pension plans offered by life insurers are significantly higher than those of the NPS. The difference can snowball into a wide gap over the long term. The other problem is that annuity income is still not tax-free, which makes pension plans rather unattractive for retirees.

 

Benefit: No risk

Shortcoming: Low rate of interest, return is taxable and high lock in period

 

  1. SCSS (Senior Citizen Saving Scheme):

 

Return: Moderate – 9.20%

Risk: Very Low

Cost: Nil

Maturity: 5 years

Return on Investment: Taxable

 

Senior Citizen Savings Scheme-2004 is giving 9.2% interest, but it is fully taxable. There is lock in period of 5 years to this investment. Also, one has to be a senior citizen, that is, investor should have completed the age of 60 years. In case of Government Servents, if they retire even at the age of 50 years, (voluntary retirement) they can participate in this scheme, provided, investment in this scheme, in retired government servent and his spouse’s name, should be from retirement dues, subject to Rs.15 lakh per person, limit of SCSS-2004.

Pension is payable every quarter. TDS is made, on pension. Account can be opened in selected Post Offices and Nationalised Banks. The interest is paid on 31 March, 30 June, 30 September and 31 December, irrespective of when you start investing.

Scheme is guaranteed by Central Government. It is much better than Pension Scheme offered by any Insurance Companies, including LIC.

 

Benefit: No risk and short lock in period

Shortcoming: Moderate rate of interest, return is taxable and only person having age of 60 can invest.

 

Disclaimer: Details in the sheet are purely based on the data/ information collected & complied after proper due diligence. We accept no liability of any profit and loss incurred based on the decision after reading the content of this sheet.