You must be thinking of using tax saving investments for planning tax but precautions should be taken while selecting these investments. Following things should be considered while selecting tax saving investments:
1. LIQUIDITY: How fast your investments can be converted into cash? When will you be able to access your money in one year or two years or so.
2. RISK AND RETURN: Access what type of investor are you? Whether you are risk averse (do not want to take risk), risk lover (love to take risk) or risk neutral ( risk don’t affect your decision). As criterion that follows with investment is low risk low return or high risk high return.
3. INFLATION PROTECTION: Whether your investment is giving you protection against inflation? This means rate of return on investment should be more than the rate of inflation.
4. TAX EXEMPTION: All tax saving investments are exempt under section 80C but return on few are exempt, so while investing return exemption factor should also be considered.
This year while investing in tax saving investments consider these factors and take precautions.
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