Five Mistakes You Must Avoid While Investing to save Income Tax

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Investment is not always about the returns and tax benefits but also about the balance. Only if you have the balance right, you will get the most out of the funds invested. To attain this, it is crucial to analyse your current situation and the types of investments you have chosen. So, here are five mistakes that you can avoid while investing in tax-saving instruments.

1.   Understanding Your Requirements

Many investors rush to invest their money without understanding their needs. Your requirements guide factors like tenure of the investment, corpus, amount of regular premiums, etc. But when you invest just to save on taxes, the returns might not be beneficial to you in the future. There are various financial instruments available that provide tax benefits as well as help fulfil wealth creation goals. But to achieve both, you have to know the necessities of your loved ones and invest in financial tools accordingly.

2.   Exploring All Available Options

You can avail of benefits under numerous tax provisions by investing in financial tools eligible for income tax deductions. Perks under Section 80C, 80D, 80G, and 80CCD of the Income Tax Act, 1961, offer you choices ranging from life insurance to equity mutual funds to suit your risk appetite. Thus, it is vital to explore all the options that are available for tax deductions for making an investment decision.

3.   Having Uneven Investment

The golden rule to follow while investing your money is to diversify and invest your funds in several products to reduce the overall risk. But if you are not comfortable investing in riskier assets, it is all right to go for different options like Public Provident Fund (PPF), life insurance, National Pension System (NPS), etc. In case you want to opt for equity or debt, it is advised to diversify your investments to distribute the total risk.

4.   Considering Current Needs

It is crucial to allocate funds while keeping the current requirements in mind. Investing surplus amount in several instruments can jeopardize your present financial obligations. If there was an immediate demand, you should have enough to take care of it. Thus, you have to consider your present commitments and invest equally before opting for long-term financial tools.

5.   Choosing the Right Amount

Getting the investment amount right is of utmost importance as it determines the returns you will get in the future. Some financial instruments have a cap on the minimum and maximum amount to be invested. And some tools give profitable returns only on investing a certain amount. Thus, depending on your budget, you have to choose the right amount to invest to get beneficial returns in the future.