Balancing tax savings and financial goals

Tax planning should complement—not replace—your overall financial plan. Effective tax-saving investments help you reduce current tax liability while building long-term wealth. Here are popular options and how to evaluate them.

Popular tax-saving instruments

• ELSS (Equity Linked Savings Scheme): Equity mutual funds with a 3-year lock-in. Potential for higher returns but with market risk. Best for investors with medium-to-long term horizons and higher risk appetite.
• PPF (Public Provident Fund): Long-term, government-backed product with tax-free returns and 15-year lock-in. Good for conservative investors seeking safety and tax-free growth.
• Life Insurance (Term + Investment-linked): Term insurance offers protection; ULIPs or endowment plans combine insurance with investment but may have higher costs. Prioritize adequate term cover before considering investment-linked policies.

How to choose

Match the instrument to your objective: choose ELSS for long-term wealth with tax benefit, PPF for guaranteed, risk-free growth, and term insurance for pure protection. Consider liquidity, lock-in, expected returns, and costs.

Common mistakes to avoid

Buying tax instruments only to save tax rather than meet goals, ignoring charges, or skipping adequate insurance. Tax planning should be systematic and goal-oriented.

Conclusion: Combine instruments to achieve a balance of growth, safety, and liquidity while reducing tax liability.