It can sometimes become habit to do things at the last available minute. Making tax savings investments included.

But as a result of always investing in March you miss out on 2 types of benefits - one if purely monetary as you lose out on a year's worth of returns or interest, and the second is cost averaging if you are investing in equity linked savings schemes. Financial decisions that are made in a rushed manner run the risk of being bad for you.

You are already aware that all tax saving investments come with their own lock-ins. Given this fact, you are also aware that the effect of a tax saving investment that you make today will last for many years into the future. You might, as a last minute rushed decision, put money in your PPF because equity markets are inconducive to fresh equity investments at the last minute and so you have no other choice. This means that instead of a 3 year lock in and equity exposure, you now have a 15 year lock in, and debt exposure. This might have been the opposite of what your asset allocation required. This is just one example of the kind of mistakes that can happen if investments are done at the last minute. And these mistakes could damage your financial health.

The right time to make your tax saving investments is right now.

This time you can get it absolutely right. You can assess what exactly you require and make the right tax saving investment decision based on your life goals and risk appetite.

Consider equity investments. This year, apart from the ELSS option, there is a second option for equity exposure by way of the Rajiv Gandhi Savings Scheme. Targeting new investors, this scheme will provide for income tax deduction of 50% for those new investors who invest up to a maximum of Rs. 50,000 in equity (directly i.e. via stocks) and whose annual income is less than Rs. 10 lakhs. Whether you choose to invest in this scheme or in equity mutual funds via the ELSS option, be sure to spread your investments over the year to take advantage of cost averaging when markets dip.

Last year, any investments done in ELSS across the year would have been invested at an average Sensex level of around 17,000. Had the investments been done at the last minute, the investors would have gotten a level that was approximately the same. This kind of coincidence might or might not happen again, it would be better to invest over the course of the year to be safe rather than leave things to chance.

Coming to debt investments, the most popular tax saver is the PPF. And with good reason. In fact, 11th November, 2011 turned out to be an interesting day for the Public Provident Fund scheme. The earlier maximum investment of Rs. 70,000 per annum was increased to Rs. 1 lakh per annum, therefore making it the same as the maximum allowed Section 80C investment limit.

Not only that, but the interest rate of 8.00% was also hiked to 8.60% initially, followed by a further hike to 8.80% effective 1st April, 2012.

There's an interesting point to note about the timing of making your PPF tax saving investments.
Firstly, be sure to invest such that the money credits to your PPF account before the 5th of the month if you are making monthly investments, as this enables you to hike the minimum balance in your PPF account, and so interest will be calculated on this higher minimum balance.

More importantly, there is a significant difference between investing at the beginning of the year and investing at the end of the year. You know you lose one year's interest, every year, but do you know what this comes to?

If you were to invest Rs. 1 lakh every year in the PPF, at the beginning of the year i.e. on April 01st, and assuming interest rates over the 15 year period are 8% (which they currently are not, we are assuming this as an average assumption), your money would come to Rs. 32,75,022 at the end of 15 complete years i.e. 16 years totally.

But if you invested this money at the end of the financial year i.e. in March at the last minute, your total PPF corpus would be worth Rs. 30,32,428.

By just being disciplined enough to do this now rather than later, you are earning an additional Rs. 2.43 lakhs. Well worth it. To know more about your own PPF investments, check out our PPF Calculator.

So don't wait. Make your tax saving investments now. And be sure to make them in line with your larger life goals and risk appetite. For any assistance on achieving your life goals, call the experts at (022) 6136 1200.

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Comments
geff.dennee@twcable.com Jun 17, 2012 You can do better than mauutl funds with less risk. About 75% of mauutl funds under perform the stock market. All of them have a management fee, usually between 1% and 2%, and some even have sales loads.Your first option should be to fund fully a retirement account. If you do this, and you have extra cash, then one of the best things you can do is open a DRIP Plan.These powerful investment plans are seldom talked about because brokers make very little money when they suggest them. Yet, they have proven to be one of the best, if not the best, long-term strategy on Wall Street. They are perfect for small investors, as well as big investors. They are safe and allow you to not care about whether the market is going up or down. They are a must for any serious investor.I strongly recommend looking into it. They are great plans.
biuro@kuncer.pl Jun 17, 2012 Whole life and mutual funds are two drfeeifnt breeds. Whole life insurance cannot earn more cash value than the death benefit unless you are doing Universal Life. If it does than you get hit with penalties. Mutual Funds can earn and lose money. There are no guarantees above simple interest. Whole life insurance will not lose it's cash value, but will not gain as much either. Look also into annuities. They can be single premium immediate to monthly pay with several payout options. They are more stable than mutual funds and can earn a very nice return on the investment.

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