The month of March marks the beginning of spring in the northern hemisphere and winter in the southern hemisphere. They say a lot of astronomical positions get realigned on the Equinox day on March 21 every year, when the day and night hours are the same.
Down on Earth, March is also a month when you need to step back and think of a possible realignment of your finances. It is because the financial year for individuals ends in March every year.
As a salaried person, many of you are perhaps still scrambling to meet the shortfall in your tax savings. You are looking for last-minute investments or risk a sharp deduction in your salary in March.
Last minute moves are an adrenaline rush for many. It is a habit that refuses to go. Writers (including yours truly) wait for the deadline to approach to produce the work, batsmen wait for final overs to score runs, those filing income-tax returns wait till the last day to file their returns, many pay their utility bills closer to or at the last minute, and so on.
When it comes to money and personal finance, the impact could be profound.
You are looking to make a lump sum investment at the end of the financial year. There is a good chance that you may make the wrong choice or lose an opportunity.
From Public Provident Fund to new health or life insurance and Equity-Linked Savings Schemes (ELSS), you have many options to pick. The money gets locked for at least three years in any choice you make. In the case of insurance, you are taking on additional coverage when you already have insurance.
The problem with investing in an Equity-Linked Saving Scheme at the last minute is that you could buy equity assets at the wrong time. Currently, benchmark indices are at the highest value in 2019. You will do this because you are forced to do so. If share prices tumble in the next few months, you will not blame your adrenalin rush. Even worse, you will blame equity markets and swear to steer clear of them.
Overall, you are damaging your prospects with this last-minute rush.
What can one do?
If you speak to any financial advisor, they will tell you that tax-planning has to begin in April of every year and not in March. The start of the fiscal year is the time when you do your annual tax plan.
If you are young and salaried, you must sign up for a Systematic Investment Plan in an ELSS in April of each year. Stay invested as long as you can. That is perhaps the single most important investment you will do.
The logic is straightforward. As a young individual, you have enough time to let your investments grow. Equity investing is all about staying invested for a long time. Over 30 years, returns by the BSE Sensex outperform all other categories of investment.
If you are planning to buy a house or already bought one, a lot of your tax planning is taken care of. You get a tax benefit on the interest you pay on your principal amount. Besides this, you also get the Section 80 C benefit for the repayment through Equated Monthly Installments or EMI. For many of the salaried, your home loan and your contribution to the Employees’ Provident Fund are sufficient to cover for your tax saving plan under Section 80C.
If you are earning well, you must engage a financial advisor. Professional help will not only allow you to structure your investments, but also your salary. You can then speak to your employer and tweak your salary structure to take benefits of deductions and tax breaks.
Death and taxes are the only two certainties in life, according to Benjamin Franklin, one of the founding fathers of the United States. As your income grows, it gets harder to save on taxes. By planning, you can ensure that you do not lose out on the benefits extended to you. At the same time, if you invest regularly and stay invested, your wealth will only multiply thanks to the power of compounding. So, let this March be the last time you do your tax-related investing in a hurry.