How to Build Wealth through Investment in Tax Saving Schemes?

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.

0 comments:

Post a comment

Note: only a member of this blog may post a comment.