Tax-efficient investment accounts are very important for traders and investors who want to minimise their tax liabilities while getting decent returns. With such accounts, you can plan your investments in a way that predominantly saves you money on taxes. By choosing the right tax-efficient account, you can lower your taxable income while simultaneously boosting overall financial growth.
There are many options for people with different financial goals and risk tolerances, such as equity-linked schemes, pension systems, etc. It’s important to know the available ones so that you can open a demat account at the earliest and invest to significant effect, while saving as much as possible on taxes. Let’s explore how these accounts work and how the demat account opening process fits into your overall investment strategy.
Types of Tax-Efficient Investment Accounts in India
1. Equity Linked Savings Scheme (ELSS)
An ELSS is a type of mutual fund that mostly invests in equity and related instruments. Under Section 80C, it lets you get a tax break of up to ₹1.5 lakh a year, but you have to lock it in for 3 years. ELSS is a great choice for investors who need short-term liquidity, and for those exploring the demat account opening process for equity investments.
2. National Pension System (NPS)
NPS is a way for people to save up for retirement. It lets investors put money into a pension corpus while getting tax breaks under Sections 80C and 80CCD(1B). 60% of the maturity sum being tax-free, NPS is a long-term investment ideal for people prioritising future retirement goals because.
3. Public Provident Fund (PPF)
With a lock-in period of 15 years, PPF is a safe way to invest in long-term debt. Under Section 80C, you can claim up to ₹1.5 lakh a year in deductions. Plus, the returns and the maturity amount are not taxed at all. PPF is a great choice for cautious investors looking to save money on taxes and avoid taking high risks.
4. Unit Linked Insurance Plan (ULIP)
ULIPs mix life insurance with market-linked returns, offering tax breaks under Section 80C for the premium paid, and under Section 10(10D) for maturity proceeds. Investors who want both safety and progress should look into it, but should be aware of the potential market risks involved.
5. Tax Saving Fixed Deposit
You can get this 5-year fixed deposit at banks, and get tax breaks under Section 80C. However, the interest you earn is taxed based on your income slab. This option is worth looking into if you want low-risk ways to save on taxes, but make sure to balance it with instruments that offer tax-free returns.
Sukanya Samriddhi Yojana (SSY)
The government backs SSY is a savings plan for girl children which lets them get tax breaks under Section 80C. The interest gained and the money paid out at maturity are both tax-free. This makes it a great long-term investment for parents who want to save money on taxes and plan for their child’s future.
Tips for Choosing Tax-Efficient Options
- Align With Your Financial Goals: Investors with short-term goals generally do better going with ELSS, due to its 3-year lock-in. Long-term savers may find NPS or PPF more suitable.
- Understand Lock-in Periods: The ability to access funds varies across instruments. ELSS offers a shorter lock-in compared to NPS or PPF, which could be critical when planning liquidity.
- Risk Appetite: Choose as per your risk appetite which investment option works for you the best. It could be ELSS or ULIPs, or even safer debt-oriented accounts like PPF or fixed deposits.
- Tax Treatment of Returns: Always factor in the post-tax returns. For instance, while PPF offers tax-free interest, fixed deposit interest is fully taxable, affecting overall returns.
- Diversification: Diversifying across multiple instruments can help balance risk while optimising tax savings. To this end, download Bajaj Broking Trading App to easily explore various investment options.
Conclusion
Tax-efficient investment accounts are a great way to reduce tax liabilities. If you know your financial goals, how much risk you are willing to take, and the length of the lock-in times for each account, you can make smart choices that will help you build your wealth over time. Diversification is important, whether you want to open a demat and trading account or put your money into something safer and longer-term, like a PPF. So get started with your journey today!
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