How a salaried particular person can maximise tax financial savings by investing in NPS

My annual wage is ₹16.5 lakh. I’ve invested a most of ₹1.5 lakh in tax saving choices and likewise bought medical insurance for my household however my tax outgo remains to be very excessive. How can I save extra tax?

-Name withheld on request

If you may have exhausted the ₹1.5 lakh tax saving funding restrict underneath Section 80C, it can save you extra tax by investing within the National Pension Scheme (NPS). There is a further deduction of as much as ₹50,000 underneath Sec 80CCD(1b) for funding within the pension scheme. If you make investments ₹50,000 within the scheme, your tax will get decreased by ₹15,600.

The NPS affords a selection of 4 courses of funds and permits the investor to outline his asset combine. If you’re not sure of how a lot to spend money on completely different asset courses, you may go for any of the three lifecycle funds (aggressive, reasonable and conservative) that make investments on the premise of your age. The NPS additionally affords traders the flexibleness to alter the asset combine and even the pension fund supervisor.

While the NPS helps save tax and is an efficient choice to save lots of for retirement, have in mind a few of the options of the scheme. It has a really lengthy lock-in. The cash can’t be withdrawn earlier than retirement except there may be an emergency. Even on maturity, the investor will get solely 60% of the corpus. The steadiness 40% of the corpus must be compulsorily put in an annuity to earn a month-to-month pension.

I’m 46 and wish to begin investing in fairness funds, and have shortlisted 4 5-star rated funds, specifically Axis Bluechip, Axis Midcap, Canara Robeco Emerging Equities and Canara Robeco Flexicap. I intend to start with an funding of ₹1 lakh in every of them. Is my selection of funds wonderful or do I have to make modifications?

-Name withheld on request

Your selection of funds is sweet, as all 4 of them have carried out very properly and are extremely rated by mutual fund monitoring companies. However, your technique of investing must be reviewed. Instead of placing a big quantity at one go, begin SIPs of ₹10,000 in every of those 4 funds. Markets are trying fairly overvalued proper now and will appropriate within the coming weeks. Lump sum investments at this stage may properly result in losses and make you flip away from equities. Staggering the investments by month-to-month SIPs will assist diversify your threat over time and common out the price of acquisition if markets recede.

As a brand new investor in equities, it’s essential to preserve a number of issues in thoughts. For greatest outcomes, investments in fairness funds needs to be for the long run. If your funding horizon is lower than 3-4 years, you shouldn’t get into equities. Also, don’t get disheartened in case your funding dips into the crimson. The SIP mode delivers the very best outcomes when markets dip and also you get to purchase extra at decrease costs. Terminating SIPs in down markets is the worst mistake that small traders make.

Raj Khosla is managing director at MyMoneyMantra.com. Queries and views at mintmoney@livemint.com

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