SIP and Tax planning

As the end of financial year approaches, many of us start having a headache as we need to send investment proofs to our HR department or else our salary gets deducted. Therefore, in order to save taxes, we invest in any tax-saving instruments that we find without thinking much. Our primary goal remains saving tax and fulfil the tax exemption requirements. Suddenly, it becomes immaterial if these investments suit our requirements or not. Once the tax season passes, we feel relieved.

Nonetheless, it is a grave investment mistake if you do not plan for your income tax properly. Any haphazard investment in the last moment leads to sub-optimal returns. If you had planned your tax investment properly, it would have been a source of great wealth once you retire. For example, if you had invested Rs. 12,500 every month or Rs. 1,50,000 every year for the next 30 years and we assume a return of 12%, your total fund value would be around Rs. 4.4 crore at the end of 30 years. What this means is that, if you do not plan you may lose this opportunity to build this enormous wealth in a simpler manner.

If this is so simple, what stops us from making such a wise financial decision? The problem is a lack of understanding of the long-term implication of such planning and pure procrastination. Hence, the first step is to get out of your inertia and plan. The planning should be started at the start of the year and not in the final quarter of the financial year. By opting SIP route, you can bring in the discipline to your approach. Next, select two mutual funds and start your SIP journey.

Proper tax planning and investing helps you target two goals. First, it helps you in reducing your tax incidence and second is to build wealth for the long term.