From this financial year, all the young people in my small team decided to adopt the new tax regime. His choice made perfect sense. With higher tax exemptions and better tax slabs under the new tax regime, young investors get the freedom to choose where they want to invest. More importantly, they do not need to lock their money in products or options that may be suboptimal. optimum.
If you are one of those parents who are advising your daughter/son to open PPF for first job, buy money-back insurance policy and then invest in a flat – all for tax savings – I am afraid Hopefully your advice won’t hold water anyway (not that the rest of your advice counts anyway!)
I’m sure many of you don’t join me in this thought! You can argue that tax incentives are a major consideration for savings in India. So, a new tax regime without such incentives could turn a country of young people into spenders than savers, you might worry. This can only be a matter of concern. And listen why!
When I started my job two decades ago, most of our investment decisions were determined by tax breaks. It could be a poor returning guaranteed income policy or buying a first or second home just to get the interest on the home loan deduction. For the savvy, a part of your savings may have gone into good products like PPF, but then there is little left to invest in the capital market and earn higher returns in the long run.
For the most part (apart from PPF), these were sold to you by manufacturers or who earned hefty commission from such manufacturers, and you were made to believe that no product is a good product without tax incentives.
hazardous products
Many poor-return products with returns of 4-5% or less were sold as tax breaks. Many inappropriate and risky products were sold to senior citizens for tax breaks.
I think moving towards a no-exemption regime or a new tax regime will help your children to be free from the shackles of such product manufacturers and distributors. This will force manufacturers to focus on performance instead of selling under the guise of tax breaks.
I feel the young generation can also be saved from the unnecessary burden of home loan EMIs, which was imposed on many of you, to save tax outflow, despite low rental yields of 2%!
So, if you are wondering where to invest for your kids in the no-tax incentive regime, don’t worry, there are a host of options out there.
Where to start?
If your son or daughter is employed, the provident fund available in their company should be sufficient for a safe investment option. PPF is not mandatory. Post office small savings like recurring deposit or time deposit should also have good options. Over the years, the PPF rate has only been falling steadily and cannot be expected to touch the level of over 9% that you were enjoying long ago. In fact, Post Office Time Deposit currently offers 7.5% for a 5-year deposit – higher than PPF (which is also subject to change every year). Remember that this is also not necessary. If your child prefers to deposit their bank account online, many new age banks now offer good deposit rates. Deposits up to ₹5 lakh are safe to invest at attractive rates, provided insurance cover.
Once this is done, the next thing is to look for options that can perform well in the long run for wealth creation. No, there is no need to approach a distributor or introduce your daughter to your bank relationship manager to get started. They can start with simple index mutual funds and ETFs and do regular SIPs for the long term. Your child will know where to do this online. If not, ask them to talk to your friends or Google them to find out. A simple index fund using indices like Nifty 50 is enough to get exposure to the capital market. It is a better way to start investing at a young age instead of burdening your kids with tens and thousands of EMIs.
term cover
Of course, by all means, encourage your daughter/son to have a term cover (especially if you are a dependent or a dependent) and good health insurance cover – even without the tax benefits. When they are young, their cost is less and they are highly profitable.
There really isn’t much else needed for beginners. And if they have some free cash without Section 80C savings, let the adults enjoy it in their own terms, it’s not your rule anymore!
(The author is co-founder of PrimeInvestor.in)