20% Guaranteed Returns in Less Than One Year!

Srikanth | 24-Apr-2009

In the times when we see words like 'Global Financial Crisis' and 'Economic Slowdown' very frequently in the news, a lot of people just 'freeze' and stop investing completely. One such person is my cousin Ritesh, he was just not able to take a decision about where to invest and was hoarding money in his Savings Bank A/c.

I decided to give him a new perspective. I told him that there is a product which offers 20% Guaranteed Returns in first year and additional returns with a choice of about 8% p.a. fixed returns or market-linked returns.

"20% guaranteed returns in first year! Are you sure?" he asked me with a guarded look. "What if I tell you that it is guaranteed by the government of India" I replied. Ajit jumped out of his seat and exclaimed "Tell me more!"

I told Ritesh that on his annual taxable income of Rs 5,00,000 he will be paying an income tax of Rs. 55,000*. However, if he invests Rs 1,00,000 in any of the tax saving products then his income tax payable will come down to Rs 35,000*. Going by the principle of 'a rupee saved = rupee earned', on the investment of Rs 1,00,000 he has made a return of 20% in the first year by saving Rs 20,000. And then depending on where the money is invested, there will be additional returns. For example, PPF will give tax-free returns of 8% p.a. and ELSS Mutual Fund schemes offer high risk, high returns in equities market. Or he could invest in several life insurance products that give a combination of fixed and market-liked returns along with risk cover.

"Oh, you are talking about Section 80C benefit, I knew about it. But frankly, I never saw it from this perspective. From this standpoint, 20% returns in less than one year does sound very attractive!" said Ritesh

"20% is just the current number for you. Tax savings can range from 10% to 30%, if your income increases this year then you could even save and 'earn' 30% returns." I clarified.

"You have this mysterious ability to tell things that are so common and simple yet have an uncommon and useful insight" said Ritesh

"So I hope that you will not leave your money idle in your bank account anymore and make it work for you by investing it" I tried to reconfirm

"Yes, I will. But... Hey, wait a minute, don't I have time till March 2010 to make my tax saving investments?" asked Ritesh, switching back to his mode of procrastination.

Another battle to fight to win procrastination - I thought and just smiled.

What would you do if you were in a situation similar to Ritesh - i.e. you have spare money to invest and are eligible for tax saving benefits, will you still wait till March or start investing systematically much early? Do you understand and agree with the principle of 'rupee saved = rupee earned'? Which according to you is the best investment avenue for saving tax under Section 80 C?