Taxes are hated by everyone, be it monarchs or democrats.
It is indeed extremely essential for the administration to work. But let’s be honest, nobody likes to give a portion of hard-earned money, right?
Thus tax saving is always a hot topic among influencers and investment biggies.
But should your investment be governed by tax-saving strategies?
While investing, a tax saving strategy can be a side dressing, but it should not be the main course.
Your financial goals should always take precedence over the tax saving strategies. While saving taxes is undeniably important, it should be considered an added advantage rather than the sole objective. Narrowly focusing on tax-saving investments can lead to pitfalls and hinder your financial progress.
Let’s explore why adopting a holistic investment approach is essential:
Tax-saving investments come bearing restrictions
When you aim for tax-saving investment, it puts a cap on many parameters. There are limitations in the amount of investment, lock-in periods, and returns too. For eg. there is an upper cap of Rs 1.5 Lac per annum in a financial year. Or say the ELSS has a lock-in period of 3 years, ULIPs have a lock-in period of 5 years, and tax-saving bank FDs require a minimum lock-in period of 5 years.
Tax-saving investments may not align with all your financial goals.
The tax-saving strategies often lack liquidity in the short term And they come with longer lock-in periods for the long term. In these cases, one might end up saving some taxes, but it comes with limitations. Thus, relying solely on tax-saving investments might limit your choices when addressing specific financial milestones. On the other hand, non-tax-saving investment options offer a broader range of possibilities.
Why settle for less when you can earn higher returns?
Value-generating investments ask for higher risks resulting in higher earnings too. So why invest in tax-saving instruments and get less returns, when you can invest in regular investments and earn more?
By diversifying the portfolio and considering regular options such as equity mutual funds, debt funds, shares, SGBs, bank FDs, or liquid funds, you can aim for higher returns and effectively achieve your financial goals. It plays a crucial role in mitigating risks and has wider scope compared to tax-saving instruments.
What should be the approach?
The right approach is to align your investments with your short- and long-term financial goals. And if tax-saving instruments fall under your path, it’s a win-win. You should consider a tax-saving investment only if it aligns well with your objectives. Maintaining flexibility in your investment choices and minimizing the risks should always be the top priority.
Don’t let the tax-saving strategies blind you to the bigger picture. Prioritize your financial goals and make well-informed investment decisions. Remember, it’s not just about saving taxes; it’s about securing a solid financial future.