March 31—the last date to make tax-saving investments in a financial year—has just passed by. Typically, taxpayers rush to make such investments to claim tax breaks under Section 80C of the Income-tax Act before the financial year-end.
However, this need not be the case at all—you can make these investments around the year and avoid the last-minute hassle. Yet, many wake up to the realisation that they are running out of time only when the May 31 milestone approaches. You can steer clear of such misadventures by putting in place a financial plan which includes tax planning too, right at the beginning of April, the new financial year. Here are five money resolutions you ought to make—and adhere to—starting April 1.
Put in place a financial plan in April
Start the process by making a budget for yourself and your family’s requirements. Analyse your previous year’s income, expenses and your future goals. “Go through your budget, financial goals and check if you have reached milestones for the year. Plan spending and cash flows for the next financial year. If you have a goal coming up this financial year, then plan to move your money from equity to debt gradually and keep it safe,” says Bhuvanaa Shreeram, director at House of Alpha Investment Advisers. Prepay your expensive loans—if not fully, at least partially—if you have received handsome annual bonuses. “If you have a debt for which you are paying an interest that is much higher than what you get on any of your investments, then pay it off with the annual bonus, that could be a smart thing to do,” she says. Use your salary hikes to increase allocation towards mutual fund systematic investment plans (SIPs) linked to your goals. “Wealth creation will not happen if you do not increase your investments annually,” says Shreeram.
Make tax planning part of your financial plan
It is best to start the exercise for 2022-23 now instead waiting until the end of year in order to avoid mistakes. “It’s better to not leave tax planning to the end of the financial year. Often investors become impatient when closer to deadline and then that’s when most mistakes can happen. You can do SIPs in your equity-linked saving schemes (ELSS funds) at the start of the financial year or invest in PPF. It should be a throughout-the-year activity as per your financial plan and goals,” says Shreeram. In fact, it should be a subset of your overall financial plan.
“Most taxpayers (who leave tax-saving to the last minute) end up investing in wrong instruments,” says Girish Ganaraj, co-founder, Finwise Personal Finance Solutions.
Review your goals right at the beginning
Like your annual appraisal, it is important to review your goals and performance of various investments that you have made every year. “In many cases, short-term goals for which you may have invested could become redundant. A review of goals at the beginning of the year will help you identify such investments and redirect them to longer-term goals,” says financial planner Nisreen Mamaji, founder, Moneyworks. For instance, it could be a car purchase that you have put off indefinitely. So, if you had invested through short-term debt instruments, you can move the funds into equities for better returns over the long term. You also need to rebalance your investment portfolio in line with your planned asset allocation. “If there is a deviation of 10 percent from your pre-set asset allocation, you can reset to your asset allocation,” says Shreeram. Rejig investments in asset classes to stick to your original asset allocation as far as possible.
Determine your insurance needs
Evaluate your insurance—life as well as health—right away, and not at the time of submitting your investment proofs or before March 31. Insurance policies are meant to serve critical needs and should not be seen merely as tax-saving instruments. “Ascertain if your insurance covers are adequate. If not, enhance the coverage right now rather than waiting until March,” says Shweta Jain, founder, Investography, a financial planning firm. As a thumb rule, your life insurance cover should be at least 10 times your annual income. However, since you have time on hand, you would do well to take stock of your assets, your goals, your loans as also your spouse’s income to arrive at an accurate figure. In the case of health insurance, a 40-year-old couple with two kids should start with a health insurance cover of at least Rs 10 lakh and review it every five years. “Getting an insurance policy is becoming difficult post COVID. As you grow older, the need for insurance is going to go up, but the probability of getting an insurance cover at affordable premiums go down. The premiums are rising, so better to buy the adequate policy at an early age,” says Shreeram. Increase your insurance cover if your life goals have changed—for instance, if you have purchased a house, had a child, and so on.
Do not be swayed by quick returns from cryptos
Cryptocurrencies have been in the news since inception, but especially after Budget 2022, which taxed gains at 30 percent. ”Our message to customers who asked us whether to invest in cryptocurrency is simple, that if you have money that you are willing to lose, that’s the kind of money that you should really allocate towards cryptocurrency. It’s a speculative investment and can only be a very small percentage of your long-term portfolio. With 30 percent taxation now being introduced on gains from crypto, it only makes the task tougher to generate returns while investing in cryptos,” says Ganaraj.
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