2. Investing Lump Sum to save Tax:

I have seen numerous people opting for lump sum investment in tax saving plans especially ELSS Funds, during the period of January to March to avail various tax rebates in India and tax deductions. This is just so wrong, from financial point of view.

If you invest lump sum in ELSS products, that are mainly equity based Mutual Fund schemes, then you are facing a possibility of losing out on good returns, since equity is volatile and the best way to make the most of this asset class is to invest regularly. SIP in ELSS should be opted for, with investments spread all over the year so that you get tax benefit and are relatively well guarded against market volatility.

3. Buying Insurance for Tax Saving

I run the risk of being repetitive but if you are one of those for whom tax saving in India means Insurance and Insurance means only a Tax Saving instrument done with the purpose of availing tax deductions in India, then that is again an income tax mistake you are making.

Insurance is for protecting against an unexpected, unforeseen loss, and the tax deduction is only an added advantage. Do not look at it purely as a tax saving investment as in that case you will be losing out on better products giving tax benefit along with better returns.