The new financial year FY 2022-23 (April 1, 2022 to March 31, 2023) has begun. It’s always better to start planning your investments at the start of the year so that you invest systematically, give your money enough time to grow, and avoid last-minute hassles or even paying taxes that you could have avoided. Let us go through some key points to organise funds that can help in building wealth, securing life, and reducing one’s tax burden for the FY 2022-23.
Bolster You Insurance Coverage: We have all seen the necessity of having life and health insurance during the pandemic. One must remember that as we grow older, the probability of getting insurance covers at affordable premium goes down. Therefore, take a close look at your insurance needs and enhance the coverage wherever needed.
“The best way to cover your life risk and provide financial security to your family in your absence is by getting appropriate term or life insurance. Insurance products are also clubbed with other benefits,” says Akhil Chandana, partner, Grant Thornton Bharat LLP.
An added benefit of buying insurance is the tax deductibility. One can claim a deduction of up to Rs 1,50,000 under Section 80C of the Income-tax Act, 1961 for the premium paid for life insurance policies. You can also claim a deduction for payment towards medical/health insurance premium up to Rs 25,000 for self, spouse and dependent children and up to Rs 25,000 for parents. In the case of senior citizens, the limit is extended to Rs 50,000 under Section 80D of the Act.
Make sure you have adequate insurance, which provides cover for all your liabilities and provides a financial safety net to your family.
Make Investments Early: Starting investments at the beginning of the year has three major benefits: you can invest small amounts instead of shelling out a large amount in one go; your money has more time to grow; and tax-related investments can be aligned to your overall goals rather than being random. Investing in mutual funds through equity-linked saving schemes (ELSS) or through Systematic Investment Plans (SIPs) is an easy and convenient way to start off. You can invest in these on a monthly basis plus they are a good way to diversify your investments and begin the process of wealth creation. If you are new to investing, starting early in the financial year also means that you have more time to analyse your own needs and available investment options and then align the two.
“Furthermore, ELSS funds can be selected carefully after considering the quantitative and qualitative factors. These funds have a lock-in period of three years, which makes them a perfect choice. One can also evaluate debt mutual funds since they provide steady returns and higher liquidity. A balanced approach should be adopted while opting for any investment options,” says Chandana.
Public provident fund (PPF) is another popular option, especially for long-term goals. The interest rate is set by the government (7.1 per cent at present); and the entire interest on the corpus is non-taxable. A PPF account matures in 15 years.
You can claim deduction up to Rs 1,50,000 for contributions made to ELSS and PPF under Section 80C.
National Pension System: A relatively new product, the National Pension System (NPS) is a retirement benefit scheme introduced by the government to facilitate regular income post retirement for subscribers. It is a voluntary scheme open to public as well as private sector employees. The scheme allows subscribers to contribute regularly during their working life. On retirement, subscribers can withdraw a part of the corpus in a lump sum and use the remaining corpus to buy an annuity to secure a regular income after retirement. NPS is one of the lowest cost investment products available. You can claim a tax deduction up to Rs 50,000 under Section 80CCD (1B). This benefit is over and above the limit of Rs 1,50,000 under Section 80C of the Act.
There are many other investment avenues available. So, start early this financial year to make the best of the time available and also avoid last-minute investments that may not match your requirements or financial goals.
