How to Build Wealth through Investment in Tax Saving Schemes?
Savings and
planning is a very much essential task, in today's era for any human being to
lead a comfortable financial life. The steps to build wealth through
investment are not so different, as lots of savings
plans with tax-favorable characteristics that are available to us. Investing is
about making your money grow through a plan that
suits your need.
The steps to
building wealth begin with a clear intention to attain it. After all,
accumulating money is not a haphazard occurrence, but a deliberate process. Once
you determine that attaining wealth is a priority, focus your energies on
maximizing your income, saving a portion of it and investing it for growth.
Building wealth also requires you to make decisions on potentially destructive
forces that erode wealth, such as inflation, taxes and overspending.
Wealth-building
strategies include investing in paper assets such as stocks and bonds, buying
income-producing real estate etc., however the best options to build wealth through investment in tax
saving schemes are following:
PUBLIC
PROVIDENT FUND (PPF)
The Public
Provident Fund (PPF) is one of the most popular tax-saving schemes. It can also
be a very good investment option for retirement Public Provident Fund (PPF)
account is a safe investment option with attractive interest rates and returns
that are fully exempted from. Public Provident Fund (PPF) is one of the
most popular savings-cum-tax-saving instruments in India. The PPF scheme
serves as an excellent long term savings option. At present, PPF is
one of only three exempt-exempt-exempt (EEE) investment schemes available in
India.
INVEST
IN SINGLE PREMIUM POLICY
With
single-premium life insurance, the cash invested builds up quickly because the
policy is fully funded. The main benefit of life insurance is to
leverage funds to create an estate that can provide for survivors in
case of any eventuality.
NATIONAL
SAVING CERTIFICATES (NSC)
National Savings Certificate are
issued by the Post Office and help in savings in the right direction. NSC
offers assured returns and tax benefits.The National Savings
Certificate (NSC)
is a popular and safe small savings instrument which can be used to create
wealth since NSCs do not have a limit of how much you can invest. What's more,
interest earned on NSC investments up to Rs 1 lakh is tax free. You read that
correctly. NSCs offer you the possibility of earning up to Rs 1 lakh without
paying tax whatsoever. This is because NSC is the only saving scheme wherein not only the initial
deposit, but also the interest for the first five years, out of its term of six
years, is eligible for a deduction under section 80C.
PURCHAHSE
OF REAL ESTATE BY AVAILING HOME LOANS
This is definitely
one of the best options to build wealth but not utilized properly. The growth
in house property prices has been 5 times in last 10 years. You can use this method
by availing home
loan to buy property. Usually the EMI for housing loan is 1% of the loan
availed. If you calculate the net outgo keeping in view the tax benefits and
other perks associated with home loan, you can create huge wealth in no time.
SYSTEMATIC
INVESTMENT PLAN (SIP)
Systematic
Investment Plan (SIP) is a smart financial planning tool that helps you to
create wealth, by investing small sums of money every month, over a period of
time. SIP is a method of investing a fixed sum, regularly, in a mutual fund
scheme, ETF or direct purchase of stocks. SIP allows one to buy units on a
given date each month, so that one can implement a saving plan for themselves. SIPs
also help in availing benefits of compounding allowing investment to grow at a
fast pace.
EQUITY
LINKED SAVING SCHEMES (ELSS)
ELSS is a type of diversified
equity mutual fund which is qualified for tax exemption under section 80C of
the Income Tax Act, and offers the twin-advantage of capital appreciation and
tax benefits. ELSS funds are one of the best avenues to save tax under Section
80C. This is because along with the tax deduction, the investor also gets the
potential upside of investing in the equity markets. Also, no
tax is levied on the long-term capital gains from these funds. Moreover,
compared to other tax saving options, ELSS has the shortest lock-in period of
three years.
STOCKS
When you purchase
stocks, or equities, as your adviser might put it, you become a part owner of
the business. This entitles you to vote at the shareholders' meeting and allows
you to receive any profits that the company allocates to its owners. These
profits are referred to as dividends. However share market is volatile and you
may gain or lose your money.
MUTUAL
FUND
An investment
vehicle that allows you to invest your money in a professionally-managed
portfolio of assets that, depending on the specific fund, could contain a
variety of stocks, bonds, market-related indexes, and other investment
opportunities.
TAX FREE
BONDS
Tax Free Bonds are
tax free because interest earned from them does not form part of the total
income. When you sell the bond on the exchange, you will have to pay capital
gains tax, though. The post-tax return you earn on this bond is better than
what you would have earned for a fixed deposit. The coupon on these bonds are
linked to the government securities market, where the prevailing economic
uncertainties have pushed up yields.
INVESTMENT
IN GOLD
Investment in gold
is a good option for both long term and short term time period. It is observed
that investment in gold has provided almost 24 percent yearly returns in the
last 10 years. There are various options to invest in gold like gold bricks,
ornament and gold ETFs and lately the Gold Schemes from Jewellers.
EXCHANGE-TRADED
FUND (ETF)
ETFs are funds –
sometimes referred to as baskets or portfolios of securities – that trade like
stocks on an exchange. When you purchase an ETF, there are a number of advantages
of Investment in Exchange Traded Funds- (ETFs) as you are purchasing shares of the overall
fund rather than actual shares of the individual underlying investments. An ETF
holds assets such as stocks, commodities, or bond and ETFs are popular
world over with less risk and much scope for returns on investment.
ULIPs
Unit-linked
insurance policies (UILPs) have both life insurance and investment components.
Your premiums are used to pay for units in investment–linked fund(s) of your
choice. Some of the units you buy are then sold to pay for insurance and other
charges, while the rest remain invested.
INVEST
IN REAL ESTATE INVESTMENT TRUSTS (REITs)
If buying real
estate is a bit expensive you might consider investing in Real
Estate Investment Trusts (REIT),
a public company that owns and manages a lot of real estate such as apartments,
shopping malls, and office buildings. Though it is not really available in
India right now but in other countries if you are interested in real estate
investments, you can buy shares of REIT stock and not worry about managing your
own buildings.
These are some of
the methods to build wealth which can be used by you depending upon your
financial goals and long term financial planning. Though all the options to build wealth through investment in tax saving schemes are
not best suited to all but you should go for the one or more options which can
cater to your needs to achieve your financial goals.
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