3 Easy Tips to Avoid a Cash-Crunch in March
Apr 05, 2011

Author: PersonalFN Content & Research Team

If you read the title of the article and thought 'I went through a cash crunch in March too!', you're not alone. A lot of people did.

As is typical, the end of the financial year brought with it the need to make last minute tax saving investments, which we might have forgotten about whilst busy during the work year.

A major problem that we can face is where to fund the tax saving investments from. It is sometimes difficult to accumulate enough spare cash lying idle in the bank, for one's Section 80C (Rs. 1 lakh) and perhaps 80CCF (Rs. 20,000) investments too.

This article will provide you with 3 simple tips you can follow, to save yourself the stress of a cash crunch at the year end!

Plan Ahead

It's the simplest one of them all.
Just like you plan for vacations and for big ticket purchases, plan ahead for big ticket investments as well. If you know that you're going to be investing Rs. 1 - 1.2 lakhs over and above your regular investments, within the span of a month, start accumulating the funds in advance. Better yet, make small regular investments to save yourself the hassle of one lump sum injection.
Go Regular

If like most people, part of your 80C investment goes into your PPF, and also, if like most people, you make the investment at the end of the financial year, you are effectively losing out on one year's worth of interest. To avoid this, either make the investment in the beginning of the financial year (that would be now, for this financial year), or make regular investments into the PPF. You can make up to 12 investments (conveniently, 1 per month) into your PPF account.

Remember, the total tax efficient investment amount remains Rs. 70,000 per year.

So, if you were to invest Rs. 5,830 per month into your PPF account (totaling Rs. 69,960 over 12 months) at the beginning of the month, for 15 years (16 counting the last year), your investment value at the end of the PPF term would be Rs. 20.30 lakhs.

Just remember:

The interest is calculated on the lowest balance in your account between the 5^th and the last day of the month, so if you do choose to invest regularly, make sure you invest before the 5^th of the month, to get the interest on a higher amount.

Doing an SIP into the other favourite option - the ELSS fund, might not be the most suitable alternative to the lump sum investment.
If you do an SIP into an Equity Linked Savings Scheme fund, then know this: Every single monthly investment acts individually, and is thus locked for a period of 3 years. So if you were to start investing into your chosen ELSS scheme right now, for this Financial Year, then the investment you make this month, will be free in 3 years i.e. in April 2014. Similarly, the investment you make next month will be free in May 2014, and so on. If you are comfortable with this, then do go ahead - it's not unheard of. Also, as with any equity investment, it is a wise decision to choose a regular investment route (SIP) rather than a lump sum.
Be Thrifty with the Salary and Bonus

If there has been no tax friendly investing done through the year, then the only option left is to be thrifty with your Feb salary and your bonus if you receive one. Remember that if you are salaried you most likely have been receiving EPF, which goes from your salary monthly. See how much the total is, and note any other tax friendly investment you may have made (Section 80C allows many investments other than PPF, EPF and ELSS funds - see our article titled Tax Savings Under Section 80C for more information). You can then delay any major purchases or holiday plans for a couple of months until your tax investments are made.

Also note, if you are a repeat offender and have usually made tax investments in the month of March, then some of your past tax saving investments might be maturing around the right time to re-use them for this year's tax saving investments.