Are Your Investments Tax Efficient?

By | December 5, 2017

Tax efficiency tells you how much returns you will get after all taxes are paid. In this articles, we’ll discuss instruments that can help you improve tax efficiency.

Are Your Investments Tax Efficient?


Tax efficiency primarily means to choose those investments which give you the best returns after filing tax. The investment instruments you choose must also match your financial goals.  In this article, we’ll discuss how a tax-efficient investment plan can help in wealth creation and 5 popular tax saving instruments.

  1. Start Tax Planning Early: Plan your tax saving investments within the first or second month of the financial year. This gives you the flexibility to access and review your investments throughout the financial year.
  2. Choose The Best Tax Efficient Investments: An investment in Public Provident Fund (PPF), NSC – National Saving Certificate, ELSS, Tax Saver FD, SCSS and post office deposits (5-year maturity) can win you a total tax deduction of up to Rs 1.5 lakhs a year under Section 80C.
  3. Diversify To Get Tax Efficient Returns: You can take calculated risks when you are young. Investing in equity and debt is a tax-efficient investment portfolio.
  4. Keep Track Of Your Investments: Replace underperforming investments with better ones to improve tax efficiency.
  5. Stick To The Plan: Never get swayed by emotions and stop investing mid-way. Stay invested in tax-saving investments until the end. Breaking your investment mid-way can be detrimental to your financial goals and fatal to wealth creation.

5 Popular Tax Efficient Investments

Tax Saver FD

You get tax deduction under Section 80C for an investment in tax saver Fixed Deposits(FDs) up to Rs 1.5 Lakhs a year. Tax saver FD has a lock-in period of 5 years. You cannot avail loan against tax saver FD.

The interest you earn from tax saver FD is taxable as per your tax bracket and TDS is applicable. FDs offers fixed interest throughout the 5 years with senior citizens enjoying higher interest.


The popular investment instrument PPF comes with a lock-in of 15 years. Interest offered on PPF is 7.8% for October to December quarter, but still gives better returns than most tax saving instruments. You can even take a loan from PPF from the 3rd financial year till the end of the 6th financial year.

PPF enjoys EEE benefits. The amount you invest up to Rs 1.5 lakh a year is tax exempt, the returns you get and the amount withdrawn at maturity is tax free. PPF is one of the most efficient tax saving investments.

ELSS or Equity Linked Saving Schemes

These schemes not only help in creating savings but are also popular investment instrument due to their profitable return. Investments in ELSS are done in equities and related equity products. It is a type of equity diversified mutual fund, where you compulsorily stay invested for 3 years.

ELSS is a very good tax-efficient investment for youth because it invests most of your money in equity. You also enjoys EEE benefits just like in PPF. If you stay invested in equity funds and stocks for more than a year, your long-term capital gains are tax free.

Debt Funds

An investment in Debt Funds does not give you Section 80C benefits. The tax on your short-term capital gains from a debt fund will be according to your tax slab. When you stay invested in a debt fund for less than three years your gains become short term.

Stay invested in debt funds for 3 years or more where gains are called long-term capital gains and enjoy the indexation benefit. Indexation helps inflate the purchase price, thereby saving taxes.

Post Office Schemes

Post Office Schemes are secured investment with guaranteed returns. You get Section 80C benefits if you invest in the post office term deposit (POTD) which has a maturity period of 5 years.

Interest in POTD varies from 7.1-7.9% for a 5-year deposit. Interest income is taxable, but there is no TDS. You will get the money you’ve invested along with the interest earned on it at the end of the tenure. is a leading online marketplace in India that helps consumers compare and apply for Credit Card, Personal Loan, Home Loan, Car Loan, and insurance.

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About Adhil Shetty

Adhil Shetty is the Founder and serves as the Chief Executive Officer of Adhil has a Master’s degree in International Relations with a specialization in International Finance and Business from Columbia University in the City of New York, and a Bachelor’s degree in Engineering from the College of Engineering Guindy, Anna University. Adhil is an expert in Personal Finance (Car loan/Home loan and personal loan) and he majorly consults on investment and spends rationalization for the Indian loan borrowers. His guidance is number based with real time interest rate calculations and hence useful for consumer’s real time query.

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