Tax Planning vs Investment

POSTED BY Abhinav Sonkar ON September 13, 2011 10:52 am COMMENTS (10)


I am 24 years old earning close to 6 lacs/annum. I have a general question.

What should be the ratio of money invested in stocks/mutual funds to the money utilized for tax saving instruments?

Should I go for complete investment with maximum profits in mind and pay full income tax?

Or should I save as much income tax as possible and rest for equity investments?

Or somewhere in between?

What is the best way forward with repsect to aggresive risk profile?

Hope my question is not confusing. 🙂



10 replies on this article “Tax Planning vs Investment”

  1. Ravi Gupta says:

    What are the Mutual Funds you would suggest if one needs to invest in ELSS scheme?

    1. Abhishek says:

      You can go for Fidelity Tax Advantage Fund.


      1. Ravi Gupta says:

        Most of the Top Tax saving ELSS are giving -ve Returns for the past 1 year, still should we go ahead and invest in them?

        A bigger question comes in mind is that should we follow the bran or the fundmanager who decides where to invest?

        1. Abhishek says:

          Hi Ravi,

          ELSS are same as equity funds but have the tax advantage and 3 year lock-in. Dont look at short term returns to invest for the long term.

          If you have a long term horizon, invest in ELSS.


  2. TheZionView says:


    First you have to list out the income tax saving elements that you already have

    1.Your PF comes under 80C .
    2.If you have a Term Life insurance that premium also comes under 80C
    3. If you have housing loan then principal part is under 80C

    Calculate the total amount of the above and subtract from 1 lakh. This will be the remaining amount you can invest to reduce the tax under 80C.

    The remaining amount can be invested under ELSS Mutual Funds for this year(Once DTC comes in this goes away) Since you mentioned yourself as aggressive.

    Other options are in Debt like
    FD for 5 years
    Endowment policy

    Also if you have Housing Loan then you can save upto 1.5lakh from the interest paid for the loan.

    I would suggest you to calculate you existing 80C investment and Invest rest in ELSS for this year.

    1. Abhinav Sonkar says:

      Thanks for the reply Prabeesh.

      Yes, currently I am able to save tax with PF and rent paid (HRA).

      I don’t have any term insurance neither any home loan at present – so no tax saving in this regard for now.

      My question is – whether investing rest of the amount in ELSS (to save tax and suffice with lesser returns) is better than paying the tax and investing in open-ended MF’s to generate higher returns?

      1. Ramesh says:

        Can you place some facts which suggest that open-ended MF are better than ELSS funds, which are statistically significant? And the performance deficit is so large as to shun ELSS altogether, as compared to non-ELSS equity funds.

      2. TheZionView says:


        Through ELSS you have double advantage of tax saving and also to participate in equity.
        What is the difference between a open ended MF and ELSS. 5%,10%??

        The moment you invest in ELSS you save tax of 10% since i believe you are under that incometax bracket. This extra money saved can be put into the places like open ended MF where u think it fits.

        I would consider skipping ELSS to Open Ended MF only if the return difference is substantial or more than what i pay as tax. But even in that case you are driving by looking at rear window,,no one can say what will be the funds return the next year…not even the fund manager managing it.
        So you gotta make your choice

  3. Abhishek says:

    Since you have options to invest in Debt and Equity (ELSS) and you can SAVE TAX simultaneously, there is no confusion.
    If you are aggressive, then invest 1 lakh in ELSS and 20 thousand in Infra Bonds.

    1. Abhinav Sonkar says:

      Thanks for the reply Abhishek,

      Wouldn’t investing 1 lakh in ELSS be a defensive move? – As we know ELSS returns are not as good as open-ended mutual funds.

      Would it be prudent to pay tax and invest the same 1 lakh in open-ended mutual funds which will give higher returns?

      Please let me know your views on this.


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