Which tax-saving financial instrument is right for you?

It’s that time of year again when we start looking for the right kind of tax-saving opportunities again, including doing our research on tax-saving financial instruments. If you too find yourself in the same boat, then you have come to the right place, because here is a quick comparison of the different financial instruments to help you decide which one is best for you.

#1 Life Insurance Policies

The reason we put life insurance policies in the lead is because the fact remains, whatever your financial plan, a life insurance policy is the ultimate keystone. Without it, your portfolio simply isn’t complete, because without it, the future of the people you leave behind is uncertain. Until a few years ago, the general rule of thumb for choosing the best life insurance policy was not to look at it from the perspective of tax savings, but rather to go for the one that offered the better payouts. But over the past few years, insurers have really upped their game and now offer a wide range of term plan options which, while offering great flexibility and benefits, also help reduce taxes for the person paying. the bounty. HDFC’s Click 2 Protect Life is one such term plan. Premiums paid by an individual or HUF under this plan are eligible for tax benefits under Section 80C of the Income Tax Act 1961, subject to the conditions/limits specified therein. Under Section 10(10D) of the Income Tax Act 1961 benefits received from this policy are exempt from tax. In addition to this, this term plan also offers additional benefits such as life protection option, death benefit, maturity benefit and many more. You can read the details of the long-term plan here.

#2 Equity Linked Savings Scheme Fund (ELSS)

Even though markets have been shaky lately, experts believe a correction is imminent. And even if the reason you’re reading this article is “tax savings,” you can’t ignore the fact that ELSS funds have generated the highest returns over the past five years. Hence, even though it is common knowledge that earnings of more than Rs. 1 lakh from equity funds are taxable, they are still one of the most popular tax-saving options.

#3 National Pension Scheme

The NPS has become more investor-friendly in recent years. All of the 60% of the capital withdrawn at the time of retirement is exempt from tax. Young investors can now allocate up to 75% to stocks. It has averaged returns of 8-11%, but is more for those looking for long-term gains, as these don’t necessarily offer the best returns for short to medium durations.


Although their returns are not as high as ELSS funds, ULIPs have a distinct tax advantage over them. They are more flexible because investors can switch from stocks to debt (or vice versa) based on their reading of the market. In addition to this, there are no tax implications on the gains made from such a change because ULIP income is tax exempt.

#5 FPP

For those who don’t mind the long lock-in period, the Public Provident Fund is a decent tax-saving option, especially for those who wish to transfer their capital from fixed deposits to higher interest rate options. . Even though the returns are never as high as ELSS or ULIP funds, PPF is still one of those timeless investments where you can never go wrong.

Now that you know how each of the above financial instruments works, you are well equipped to know which one(s) to choose. Ideally, start by not putting all your eggs in one basket, then branch out. With the right combination of insurance, pension and mutual funds, you can never go wrong.

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