Most of them would have come across this phase of 'saving tax' during their first year of working (entering into a professional world). They need help on where to invest to get higher returns and how much to insure themselves. This is to help you in making a decision, so that you needn't have to invest in something/somewhere without proper knowledge and regret for it later. (I have seen many doing this)
How much can I save and where can I save/invest?
How much should I insure?
Have I insured enough?
These are the questions that comes to you and the answers depend upon the returns you want and the risk appetite you have.
The maximum one can save now(2007) as per law is 1Lakh. This also includes your PF. So, exclude that and calculate. You can additionally save a max. of 10,000 from tax, if you are going to buy Mediclaim for your relatives or for you. And also, there are many ways to exclude tax by spending!
Insuring is always a best practise. You can insure yourself for atleast your annual income!. But I am not saying you shouldn't insure more. Actually you should. For insurance, I will write a separate post. The only thing, I will ask you to do is,
"Always go for Plain Term Insurance Plan" -
You can checkout the premium online on all of the insurance company websites. Please do your own research to find out which company offers the lowest. The term insurance plan is with everyone and you needn't have to think to go for any other plan, even your advisor says you to do so. More on this, on the next post.
Let me come back to How much and where to save/invest?
I said this depends on your risk. If you do not want to take any risk,
Try these, (for saving tax)
- Most effective return of 8% compounded annually
- 15-16 years of lock-in period.
- you can take out the money as loan after the third year
- 500-70,000 premium range / annum (Its really wide range)
- The income coming from it is not taxable.
2. Insurance Premium - According to the period and plan you have chosen.
There are many more plans withour rish like (NSC certificate( less returns post tax), Many small savings plan(returns are less than PPF), FD - 5 years(Remember there will be tax to the returns according to your tax slab)
I will recommend only these two for those who do not want to take any risk.
For those who are willing to take risks, but want higher returns,
1. Insurance Premium
2. ELSS - Equity Linked Savings Scheme
- 3 years of Lock-in Period
- Mutual funds - market risk.
- Investing in Equity - Risk is more.
There is also one thing called ULIP - Unit Linked Insurance Plan. What they say is they will combine 1 and 2 with risk above. I wouldn't recommend this. The point is, they also have 3 years lock-in period. But the percentage that they take as the amount for managing the fund in the first year is very high - like 50% or atleast 30%, then some 6-8% for the next two years and it does differ according to plans, while Mutual Funds are managing it with just 2-2.5% according to the plans. There are many Tax saving schemes available and you can see their NAV - Net Asset Value everyday in the internet.
NAV is just he price you pay to get a part of mutual fund on that particular day. The similar NAV will be available for ULIP but not updated everyday and also not easily accessible. So, I would recommend ELSS for getting higher returns (with risk) and Insurance - Term Insurance.
Its quite a long post, I know. If you want anymore information, just give a comment.