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- Starting your
tax investments early gives you time to do propertax planning - When you invest early, your investments get more time to grow and therefore you can reap the benefit of the power of compounding
- Leaving your tax investments for the end of the financial year may lead to rushed tax-saving investments that may not align with your financial goals
If you have opted for the
Many of us tend to postpone our tax-saving investments till the last quarter of the financial year. As a result, we might be forced to make rushed decisions before the financial year ends and that is not a wise thing to do.
Here is why you should start your tax-saving investments now and not wait any further.
Maximising tax savings
By initiating your tax-saving investments early in the financial year, you open the door to several opportunities for maximising tax deductions. “Whether it’s channelling funds into ELSS mutual funds or committing to long-term fixed deposits, early investment allocation sets the stage for tax savings while simultaneously helping you to invest for future aspirations — be it retirement, educational, homeownership and so on,” says Abhishek Soni, CEO, Tax2Win, an income tax portal.
Systematic investment approach
Investing in tax-saving instruments shouldn’t just be for the purpose of saving taxes. Your tax-saving investments need to be aligned with your financial goals. Starting your tax investments early gives you time to do proper tax planning.
“Through avenues like SIPs (Systematic Investment Plans), you can cultivate a habit of regular contributions, steadily building your investment portfolio over time. This disciplined approach provides financial stability,” says Soni.
Also, if you leave your tax-saving investments till the end of the financial year, you may be short of cash and not have enough money to make adequate tax-saving investments.
“Starting investments early fosters a culture of prudent saving and investment,” says Archit Gupta, Founder and CEO, Cleartax.
Harnessing the power of compounding
When you invest early, your investments get more time to grow and therefore you can reap the benefits of the power of compounding. This would apply to any investment under section 80C like a public provident fund (PPF) or equity-linked savings scheme (ELSS).
“By initiating investments early rather than later, you facilitate the organic growth of your portfolio over time. This growth not only accrues returns on your principal sum but also compounds returns on the profits accumulated in preceding years,” says Gupta.
Suppose you want to invest ₹60,000 in ELSS. A SIP of ₹5,000 for 12 months, will give you more returns compared to investing a lump sum of ₹60,000 in February or March before the financial year ends, where your investment will just start earning returns.
Capitalising on incentives
For many, April-June is the season of appraisals and incentives — a windfall that can be used for tax planning purposes. Redirecting these bonuses or raises toward tax-saving investments is a wise idea, lest you spend it on something you do not really need.
Overall, tax planning should be a constant endeavour throughout the financial year for the long-term success of your financial goals, and should not be a one-time decision towards the end.