Twenty-five years is an ideal age to start saving and managing your investments.
Ideally, one should invest 90 per cent in equity and 10 per cent in debt. ELSS (equity linked savings schemes) and a pension fund are also two good investment options. Include life insurance and health policy in your portfolio for protection and tax deduction benefits. If you are planning to buy a house, invest in fixed deposits.
At 35 your priorities are different. Your child's education expense is now part of your investment portfolio. Besides this, home loan and insurance are a must as they get you a tax deduction. At this age, you should be putting 75 per cent money in equity and 25 per cent in debt. Also start planning for retirement at this age and include a pension plan in your portfolio. 35 is also the right age for investment in ELSS.
At 45 years of age, it is necessary to maintain the equity-debt ratio at 75:25. It is also time to invest in your child's higher education. Start putting money in PPF (Public Provident Fund) and equity fund. Five-year fixed deposits should also be on your portfolio.
A 55-year-old should invest in debt and equity in equal proportion. Also invest in NSC (National Savings Certificate) so that the cash flow is maintained after retirement. Don't wait till February and March to do investments. The best strategy is to begin your investments at the start of the year and continue it throughout the year.
Experts, Vijay Sinha, Assistant Director-Agency, Tata AIG Life and Financial Planner Gaurav Mashruwala, help you with your investment portfolio.
What are the new investment trends?
Vijay Sinha: About 80-90 per cent people buying insurance, are taking ULIP(Unit Linked Insurance Plans). Though there is a tax exemption limit of Rs 10,000 under section 80 D of the IT Act, not many people have availed of this limit. More than a tax savings instrument, ULIP is popular as a good investment option and risk cover, pushing its sales up in the past three months.
Are many people taking the benefit of bank deposits of five years, which offer tax deductions under section 80 C of the IT Act?
Gaurav Mashruwala: The response is not great despite the fact that huge publicity has been given to the bank deposit schemes. Not many have gone for bank FDs as tax saving investment, whereas a number of people have shown interest in ELSS. People have mostly invested in insurance, ELSS, PPF and retirement products.
Is it possible to make a good portfolio within Rs 1 lakh, the existing limit for tax deduction?
Gaurav Mashruwala: The Rs 1 lakh limit is very less and gets exhausted by mandatory expenses. Just three things, contribution towards employee provident fund, children's education and home loam, alone can account for Rs 1 lakh.
Vijay Sinha: A sum of Rs 1 lakh is too less to make investments for the future. If someone has to secure his/her family and invest in insurance and also save for retirement days, it can't be done within Rs 1 lakh. PPF and PF (Provident Fund) alone make up for Rs 1 lakh without including an insurance policy. And you can't commit a bigger blunder than not buying an insurance policy.
Are people opting for pension plans after they have been brought under the gambit of Rs 1 lakh limit of tax deduction?
Vijay Sinha: Sale of pension plans has certainly increased, but not to the extent we thought it to would. A very small percentage of the country's population will benefit from the government's pension schemes. Therefore, people themselves have to plan and invest for retirement.
The government is giving tax deduction of up to Rs 10,000 within the overall limit of Rs 1 lakh. However, pension plans should not be seen as a mere tax saving instrument.
If you survive till 75 years of age, you need money to sustain the same lifestyle for 15 more years. So, if you invest Rs 10,000 for five years or more to save tax, it will not be enough.
I make approximately Rs 40,000 a month. I haven't invested in any tax saving instruments this year. Can I invest now and save tax? What are the immediate options? How are insurance cover and mutual funds as long-term saving instruments? -- Meghna Malik
Vijay Sinha: Your first priority, if you are married, is to get an insurance cover for yourself. Even if you are not married yet, it's the right age to take an insurance cover. Suppose you take term insurance at the age of 25 to 35 years, you will get an insurance cover of Rs 10 lakh for just Rs 2,000. However, you will have to pay more if you take the insurance cover after ten years.
As your responsibilities go up with income, the need for insurance also goes up. So, you should cover yourself adequately. Insurance requirement of a person having a family and an annual income of Rs 4 lakh is Rs 50 to Rs 60 lakh. But if you start now, insurance cover of Rs 10 lakh to Rs 20 lakh is sufficient.
In case, you invest in ULIPs, put Rs 50,000-Rs 60,000 there and the rest can be invested in a long-term plan such as retirement, a unit linked plan or mutual funds. This way, your corpus will grow larger. So, the earlier you start investing, the longer you invest and the bigger the corpus you have.
Other than insurance what other tax saving instruments do you recommend?
Gaurav Mashruwala: I feel that health insurance is more important than life insurance, particularly when your employer has not provided you with a health insurance cover. Life insurance is a support for the family when you are not alive. But the immediate requirement is health insurance.
If the goals are short-term, say about five years away, invest in debt instruments. If you are planning for retirement, which is 35 to 40 years from now, then invest in ELSS. So it is better if you keep in mind your goals while planning investment.
Which is a better investment option between insurance and mutual funds?
Gaurav Mashruwala: An insurance cover is to keep your family protected. I recommend an insurance term plan. There are so many expenses involved in market linked insurance products. So, considering this, equity linked savings schemes are certainly good.
I quit my job with a semi-government organisation in December. What should I do with the provident fund money? Should I repay the home loan or invest? -- Vittal Jamle, Pune
Gaurav Mashruwala: Always get out of the loan first.
Vijay Sinha: Insurance should cover your debt and responsibilities. Having done that, you will require an insurance cover of a lesser amount. An insurance cover of Rs 40 lakh is adequate when you are 40-years old and earning Rs 4 lakh in a year, whereas an insurance cover of Rs 60 lakh is enough for a 30-year-old person seeking a cover.
My annual pay package is around Rs 5 lakh. I have invested Rs 3 lakh in LIC and Rs 10,000 in ICICI Prudential. I also have to repay a home loan of around Rs 10 lakh. What investments should I make so as to minimise my tax liabilities? -- Amarjit Panwar, 38, Pune
Gaurav Mashruwala: You are already contributing towards employee provident fund, paying installments for housing loan, life insurance policies and spending on your children's education. However, you need more investments considering children's education and their marriage. Think about life insurance and a term plan.
You need an insurance cover of Rs 40 to 50 lakh for which you will pay a premium of Rs 20,000-Rs 25,000.Your loan and family is protected within this premium. Besides this, you should invest keeping in mind three goals: children's education, children's marriage and your retirement. Life insurance and ELSS are two good investment options.
The new tax saving trend
Now you can save tax up to Rs 37,000 through investment in insurance. Companies have life insurance and health insurance schemes that offer tax benefits. Life cover gives you tax deduction under 80C and health insurance cover under 80D of the IT Act.
A person earning Rs 10 lakh per annum can save up to Rs 30,000 in tax by investing Rs 1 lakh in insurance. It will total up to Rs 33,660 by including Rs 3,000 as 10% surcharge and Rs 660 as 2% education cess. Now that the insurance companies have started selling health products, they include Rs 10,000, the tax deduction limit for health insurance. By investing Rs 10,000 in health insurance, you save another Rs 3,366.
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