Survey Results - How do individuals plan their tax related investments?

Every individual, whether salaried or in business, tries to ensure that his tax outgo is at the minimum.  Tax-related investments such as Provident Fund, Equity Linked Saving Schemes, etc form major avenues of saving taxes.  Each year, in the months of February and March, insurance and mutual fund companies heavily advertise their products to lure the last minute rush by individuals to save their tax.  New tax-saving products are launched by these companies to cash in the tax fever.

Whether the insurance and mutual fund companies benefit by launching their products in the last quarter of the year?  How do tax payers plan their tax related investments?  Do they plan their investments early or they rush for investments during the year-end?  Which is the favourite instrument of tax saving for individuals?

Bachhat did a survey amongst its readers to gain answers to these questions and the responses were a bit surprising.  Total of 49 individuals participated in the survey.  Almost all the participants were salaried employees and more than 75% of the participants were less than 30 years old.

Key Takeaways from the Survey

 

  

 * sum of all percentages will be more than 100, since few individuals have chosen more than one option.

 

1.    Only 24% out of all respondents make major part of their tax investments in the months of January to March.  Most individuals (59%) spread their investment over the entire year.  This is contrary to the popular belief that people wait till year end for tax planning.  This also correlates perfectly with the outcome of the other survey question on where do the individual invests (See Point 2).

2.    Provident Fund (78% of respondent have invested either in PPF, EPF or both) and Life Insurance (72%) are most popular investment options for tax planning.  Home Loan is also a significant component for those who have opted for it.  Since both EPF and Home Loan are periodic payments, major portion of the 80C investments are spread over the entire year and supports the findings in Point 1 above.

3.    Pension Fund (20%) and Bank Fixed Deposits (16%) are the least prefer investment options.  The quantum of investment in these instruments is also less as compared to other alternatives.

 

4.    16% of the respondents pay more than Rs. 50,000 for life insurance cover, where as significant 20% pays between Rs. 25,001 to Rs 50,000.  Taking note of the fact that life insurance coverage in India is low and pure term insurance does not cost much, the above findings justify that many individuals invest in insurance + investment products offered by the insurance companies.

5.    Infra Bonds are yet to find flavor amongst individuals (mainly due to low interest rate on offer) with only 42% individuals investing in the same.

6.    Similar for health insurance cover with just 42% of individuals opting for it.  However, this figure does not take into account the health cover provided by employer to their employees.

Are you an exception to the above findings or does your tax planning replicate this?  Do share your comments and suggestions.  Thanks.