Manuscript No. AMJR20200025531A Study on Financial Planning for SalariedEmployees and Strategies for Tax SavingsAuthor- Mariyah Ahmer Shaikh, Allana Institute of Management Sciences, PuneCo-author- Prof. (Dr.) Atik Shaikh, MBA Department, Allana Institute of Management Sciences, PuneABSTRACT--- A financial plan is something that you create afterconsidering your current income, savings, expenses, futureearnings, insurance if any, financial goals and a vision for yourfuture life. You then try to choose savings and investmentoptions accordingly so that you can meet your long-term andshort-term financial goals at various stages in your lives.Financial planning is important when it comes to saving taxes. Itis imperative for an individual as it helps in maintaining steadysavings percentage even when the financial markets areconstantly being played between inflation and fluctuation.Tax planning is an essential part of financial planning. Efficienttax planning enables us to reduce our tax liability to theminimum. This is done by legitimately taking advantage of alltax exemptions, deductions rebates and allowances whileensuring that your investments are in line with their long-termgoals.The researcher had conducted a survey in order to find out thefinancial planning as well as for tax saving of the salariedindividuals. The survey was done within the region of Pune,Maharashtra for the period of 2 months (1st June, 2020 to 31stJuly, 2020). The purpose of the study is also to find out the mostsuitable and popular tax saving instrument used to save tax andalso to examine the amount saved by using that instrument.Keywords:Financial planning, tax planning, tax savinginstruments.I.INTRODUCTIONFinancial Planning is the process of meeting life goalsthrough the proper management of finances. Financialplanning is a process that a person goes through to find outwhere they are now (financially), determine where they wantto be in the future, and what they are going to do to get there.Financial Planning provides direction and meaning to personsfinancial decisions. It allows understanding of how eachfinancial decision a person makes affects other areas of theirfinances. For example, buying a particular investment productmight help to pay off mortgage faster or it might delay theretirement significantly. By viewing each financial decisionas part of the whole, one can consider its short and long- termeffects on their life goals. Person can also adapt more easilyto life changes and feel more secure that their goals are ontrack.Today, in India financial planning means only investingmoney in the tax saving instruments. Thanks to the plethoraof tax exemptions and incentives available under varioussections and subsections of the Income Tax Act. This has ledto a situation where people invest money without reallyunderstanding the logic or the rationale behind theinvestments made. Further the guiding force in investmentseems to be the "rebate" they receive from the individualagents and advisors. The more the rebate an agent gives, theself-satisfied person are in the belief that they have made anintelligent decision of choosing the right agent who hasoffered them more rebate. In the process what is not beingrealized is the fact that the financial future is gettingcompromised.II.CONCEPT & SIGNIFICANCE OF THE STUDYFinancial Planning is an integral part of any individual life,especially in this modern world where value of everything isexpressed in terms of money. The active working span ofhuman life is short as compared to the life span. This meanspeople will be spending approximately the same number ofyears in after retirement what they have spent in their activeworking life. Thus, it becomes important to save and investwhile working so that person will continue to earn a satisfyingincome and enjoy a comfortable life style.III.SCOPE OF THE STUDYThe scope of study is getting familiar with various investmentavenues available in market. To study the life stages of anindividual and to identify their risk tolerance, income flow,life goals and current investment. Study should cover all areasof the individual’s financial needs and should result in theachievement of each of the individual’s goals.The scope of planning will include the following: IV.Risk Management and Insurance PlanningInvestment PlanningRetirement PlanningTax PlanningOBJECTIVES OF THE STUDYPrimary objective: To understand financial planning done by salariedemployeesTo spread awareness about financial planning amongthe working-class peopleTo understand the saving-investment behaviour ofthe salaried employeesTo understand the importance of tax planningSecondary Objective: To gain knowledge about the various investmentavenues keeping in mind the significance of taxsaving
Manuscript No. AMJR2020002553 V.To understand how savings can be increased for thefuture using different instrumentsTo find out the most suitable investment instrumentfor salaried investorsTo examine the amount saved by using thatinstrumentGiven below are some of the best tax saving investmentopportunities in India:Table 1. Tax Saving Instruments1671,50,000Section 80CUp to Rs.1,50,000Section 80CUp to Rs.1,50,000REVIEW OF LITERATUREA large number of salaried tax payers in India start planningtheir tax saving investments very late in the year when thetime limit for submission of investment evidence is coming toan end or at the end of the financial year. While it may helpyou in saving taxes, it might not be the best decision that youhave made.Given below are the 3 reasons why planning in advance willhelp you: Choose the best option: When you plan ahead, youget time to choose an investment scheme that will suityour needs and financial condition – how much riskyou can take, your cash requirements, for how longyou can invest etc. It will help you arrive at the bestdecision. Helps in avoiding last minute aggravations andblunders: When you are rushing making investments,it may lead to unforeseen investment errors. Youmight not have enough time to perform due diligencebefore making an investment decision. Plan the schedule for investment paymentsthrough the year: When you begin the investmentprocedure early in the year, it gives you flexibility forplanning payments during the course of the year.Sr. no.TaxSavingScheme (ELSS)Public ProvidentFund (PPF)National nstrumentsTaxBenefitsUnder SectionLife InsuranceSection80C(Premium&Section 10(D)(Death/Maturity)Up to Rs.1,50,000Section 80DUp to Rs.55,00080CCCUp to Rs.1,50,0002Health Insurance3UnitLinkedInsurance Plan(ULIPs)4NewPensionScheme (NPS)Section 80CCD5Equity-linkedSection 80CVI.Type of research designResearch equipmentSampling technique:::Sample sizeSample design::Area of research:VII.Descriptive researchQuestionnaireNon-probability techniqueconveniencesamplingmethod190 samplesData has been presented withthe help of bar graphs, piecharts, etc.Pune, Maharashtra.SOURCES OF DATA:Both the primary sources and secondary sources of data havebeen used to conduct the study.Primary source:The primary data for this study has been collected byapproaching the salaried employees via internet (digitalsurvey method).Secondary source:The secondary data are collected from articles published onvarious websites (desk research).VIII.1.Up to Rs.1,50,000AdditionalRs.50,000Up to Rs.RESEARCH DESIGN:DATA ANALYSIS AND INTERPRETATIONSAge of the respondentsAgeNo. of %50-6084%Grand Total190100%8. 1The majority of respondents were from the age groups of 2030, i.e. 66.%, and 30-40, i.e. 22%. These are considered to bethe most active age groups.
Manuscript No. AMJR2020002553The age group of 20-30 is the most dynamic of all age groups.In this age group, an individual has just begun to start/build acareer. This age group is prone to spending lavishly and canbe targeted for investing and saving. On the other hand, theage group of 30-40 are stable and careful as they have biggerresponsibilities like family, home loans, car loans,etc. This isthe stage when they begin to think/plan for a secure future.Hence, they take tentative steps towards investments.2.Gender distribution of the respondents:GenderNo. of respondents Percentage %Female7439%Male11661%Total190100%Clerks /others6735%Total190100%8. 4Most of the respondents were doctors/engineers i.e. 40%,whereas 35% of respondents were from the category ofclerks/others. Respondents belonging to the category ofteachers/lecturers and officers were 11% and 14%respectively.5.Annual savings of the respondents:Annual savingsNo.ofrespondentsPercentage %Less than Rs. 25,0007841%Rs. ,00,000179%Morethan1,00,0004222%190100%8. 2From the above figure, we can interpret that, from all therespondents, 61% are males whereas 39% are females. Hence,we can say that, the females have started to work shoulder toshoulder with the males in our developing society.Up to Rs. 2 lakhRs. 2-3 lakhRs. 3-4 lakhRs. 4-5 lakhAbove Rs. 5 lakhNo.respondents3824352865Total190Annual Income3.of3Percentage %Rs.Total20%13%18%15%34%8. 5100%Annual Income of the respondents:The above figure shows that a major portion of respondentsare in income slab of above Rs.5 lakh p.a.,i.e. 34%, thisindicates that the person may be in the mature stage of career.On the contrary, the second major group of respondentsbelong to the income slab of upto Rs.2 lakh, i.e. 20%, whichindicates that he/she might be in the beginning phase of theircareer. With the rest of the income slabs, the respondentsshow a stable phase of their career.8. 34.Occupationalrespondents:statusoftheOccupational statusNo. of rs /Engineers7640%Officers2714%From the figure shown above, we can indicate that majorityof the salaried employees have an annual savings of less thanRs. 25,000, i.e. 41% of the total respondents; and on thecontrary 22% of the total respondents have an annual savingsof more than Rs. 1,00,000. It can be said that the reasonbehind low/decreasing annual savings can be increasingresponsibilies of a middle class worker, less income, morespending, debts/loans, lack of awareness regarding savingsand investment, and not to forget inflation.The respondentshave also shown a slow and steady/increasing saving patternafter they have completed their expenses, as we can see in thefigure.6.The motivators of savings of the respondents:Motivators of savingsNo.ofrespondentsPercentage%To meet specific purposeTo earn income853645%19%
Manuscript No. AMJR2020002553TomeetcontingentexpensesTo get tax benefits3820%8243.2%20%Insurance PoliciesGovt. Securities i.e.,PF, GPF/PPFPost Office deposits178.9%100%Equity Market3015.8%8. 6Gold9650.5%The motivation behind saving cannot be known except for theindividual himself. As shown in the figure above, it can besaid that the respondents’ main motivator is toTotal2714%32%To be secured at old age39Grand Total190meet specific purpose, as 45% of respondents have selectedthis option. These specific purposes for saving can bepersonal expenses like buying luxuirious goods, family’sexpenses, saving for children’s future, health expenses,vacations, wedding, etc. Whereas, there are only 2% ofrespondents whose motivator for saving is to get tax benefits,which shows that most of them are not aware about thebenefits of tax saving investments.7.Factors considered by the respondents for increasingthe size of savingsNo.ofrespondents73Percentage%39%6735%Future needs4423%Tax benefits42%Statutory requirements21%Total190100%FactorsIncrease in salaryAdditionalincome/increments8. 7The figure shown above indicates that, in order to increase thesize of savings, an increase in salary is expected, as 39% ofthe salaried respondents have chosen this option. Additionalincome/increments also needs to be considered in order toincrease savings.Future needs of an individual can beconsidered as a factor which pushes an individual towardssaving more of their income as it may benefit at the time ofneed.Tax benefits and statutory requirements are the leastconsidered factors while increasing the savings.8.100%8. 8It is observed that half of the respondents (i.e. 50.5%) mostlyprefer to invest in gold. Due to some influencing factors suchas high liquidity and inflation-beating capacity, gold is one ofthe most preferred investments in India. Gold investment canbe done in many forms like buying jewelry, coins,bars, gold exchange-tradedfunds, Gold funds,sovereign gold bond scheme, etc.9.Respondents’ investment trend in the recent aining Constant8042%Grand Total190100%Investment trendofPercentage %42%8. 9The figure shows that the investment trend of the respondentsis either at an increasing stage or is remaining constantthrough recent years of investment. We can interpret that, anincrease in investment can be influenced by the increase inincome, savings, future needs, decrease in interest rates,attractive returns on investment, proper knowledge/awarenessabout the benefits of investment, etc. On the other hand,decrease in investments can be caused due to lack ofknowledge, disorganised investment, psychological behaviourof the investor, decrease in income/savings, morespending/expenses, inflating rates, etc.10. Time horizon of 11%74%37.4%Short-term (More than 1 yr)Very short-term (Less than 1yr)Investment preferences of the respondents:Horizon of investmentsLong-term (More than 10yrs.)Medium-term (More than 5yrs.)Bank DepositsNo.ofresponses foreachrespondent71Mutual Funds7237.9%As per convenience7037%Fixed centage %4
Manuscript No. AMJR20200025538. 1037% of the respondents prefer to invest as per theirconvenience. Investment objective to a greater extenddetermine the investment tenure and the avenue. Differentinvestment objectives have different investment avenues tomeet them. By determining the objective we can easilydetermine the investment vehicle for individuals.money, getting higher returns, that we know for sure that, thatparticular investment will yield rich returns. Althoughfinancial companies try their best in advertising theirinvestment products through T.V., radio, journals, magazines,etc13. Initiatives recommended by the respondents to createawareness among salaried employees aboutinvestment:11. Whose advice do the respondents take whileinvesting:AdvisorsNo.ofrespondentsPercentage %Spouse/family members8143%Friends/ colleagues2413%Company Agents00Financial advisors2010%Self-decision6534%Grand Total190100%Most of the investment decisions are influenced by taking theadvise of spouse/family members (43%) or can be self-madedecisions (34%) as well.Investing money requires a meticulous approach and actingon a piece of advice calls for adopting an extra layer ofcaution. In today’s world, the investor, have a plethora ofinvestment options at their disposal. However, what’sessential is to be aware of the pitfalls and seek help fromseasoned professionals to maximise gains.12. Where does the respondents get information for yourinvestment:Information SourcesNo.ofresponses foreach optionPercentage%T.V & Radio4423.2%Organization outTraining programmesWorkshops & seminarsSocial welfare programmesAdvertisementsInvestors’ age%46.3%57.4%26.8%30%26.3%100%8. 13From the figure shown above, we can interpret thatworkshops and seminars as well as training programmes areamongst the good initiatives for creating awareness aboutinvestments among the salaried employees. As these optionshelp to provide proper information and practical knowledge tothe audience. The traditional method i.e. advertisements arealso commonly used to create awareness but this option is notas much in the trend as the above two options.14. Respondents’ awareness of tax saving instruments:Awareness 1901908. 14Journals & Magazines5428.4%Agents & Advisors4523.37%TotalRecommendationscreate awarenessinvestmentTotal8. 115100%8. 12Most of the salaried employees, (i.e. 66.8%) get informationfrom their family members and colleagues about the benefitsinvestment. We get information about investment at the grassroot level, i.e. the People. Its only after the people invest theirInsurance policies like mostly life insurance and healthinsurance as well as PPF seems to be the most popular, asmost of the respondents are fully aware about theseinvestment instruments. Whereas, on the contrary, ULIPs,NPS, ELSS and NSC are the least popular tax-savinginvestment options as there seems to be lack of awarenessabout these options amongst the salaried employees.15. The type of investment plan does the respondentsprefer in future:
Manuscript No. AMJR2020002553 Regular return planNo. of responsesofeachrespondent92Pension plan7438.9%Medical plan5629.5%3520%7438.9%Future investmentplan preferenceSpecificpurposeplanMultiple option planTotal From the above figure, we can conclude that most of therespondents prefer a regular return plan for future investment,as their main motive for investing might be to get a goodreturn on investment as they continuously invest. Around48% people show interest in this type of plan. The secondmost investment plan preferred by the respondents arepension plan and multiple option plan with 38.9% of thepreference. Medical plan and specific purpose plan areamongst the least preferred plans for investment, with 29.5%and 20% respectively. 100%8. 15IX.Most of the salaried employees get information aboutinvestments from their family members and colleagues,whereas a few get information from journals andmagazines, organizational reports, T.V and radio, etc.From the study, it is found that conducting workshopsand seminars is a good initiative to create awarenessamongst salaried individuals about the importance ofinvestments.The study has also revealed that most of the salariedemployees are not aware about the benefits of taxsaving investments like ULIPs, NPS and NSC. Lifeinsurance, health insurance as well as PPF are thepopular investment options.Most of the respondents prefer a regular return plan as achoice for their future. Other preferences includepension plan, multiple option plan and medical plan.Percentage %48.4%X.The study reveals that majority (66%) of therespondents were from the age group of 20-30 yearsand most of them were from the male category (61%).From the annual income, it is found the middle-class aswell as the upper middle-class working employees werethe target respondents. The respondents were mostlydoctors/ engineers.Most of the respondents save less than Rs. 25,000annually from their annual salaries.The motivators for saving for most of the respondents isto meet a specific purpose.According to the results, an increase in salary oradditional income/increments will help an individual toincrease the size of their savings.Gold is found to be the most preferred choice forinvestment, whereas other investment preferencesinclude Govt. Securities i.e., PF, GPF/PPF, bankdeposits, mutual funds and fixed deposits.The investments trend amongst the respondents is eitherincreasing or decreasing, on the other hand a fewrespondents' investment is remaining constant.Majority of the salaried employees' do not have aspecified time horizon behind their investment decisionas they prefer to invest as and when it is convenient forthem. On the other hand, most of them invest formedium term as well as long term.Most of the salaried employees take the advice of theirspouse/family members, as they can be said to be themost trusted individuals. The respondents have alsotaken their own decisions for making their owndecisions.LIMITATIONS FINDINGS6 XI.Reluctances of the respondents to provideinformation can affect the validity of the responses.The lack of knowledge of the respondents about thefinancial instruments can be a major limitation.The information can be biased due to use ofquestionnaire.The study was conducted for 2 months i.e. from 1 stJune 2020 to 31st July 2020.The survey was conducted digitally, hence there waslack of physical presence from both ends.The responses were anonymous.Question number 14 from the survey conducted wasfound to be a little difficult to understand for a fewrespondents. Hence, 15 responses were either unattempted or answered incorrectly.CONCLUSIONTax-saving is only a smart part of a broad category calledfinancial planning. There is more to a financial plan than whatmeets the eye. For a financial plan to be successful, it shouldhave a proper investment plan that saves taxes.Irrespective of the plan you choose, few things remainconstant. They are: Having well-structured short-term and long-termfinancial goals at every stage of your livesStarting to save as early as you can, so that it givesyou a long window to stay invested and reap goodreturnsCutting down unnecessary expenses and saving for abetter futurePutting aside at least 10 to 15% of savings everymonth towards financial or investment plans, to beused at a time when it is needed the mostTalking to a professional in case of any queries orambiguity
Manuscript No. AMJR2020002553XII.RECOMMENDATIONSAfter all this it can be stated that the fundamental cornerstones of successful investing are: Save regularlyInvest regularlyStart EarlyDiversifyUse tax shelterKeep a regular check on investment and modify plansas and when neededAll the documentations should be complete and need to bepreserved. At time of maturity it is necessary to produce theinvestment documents which act as a proof. But many times,investors do not have proper documents which dishonours theclaim at maturity. It is also recommended that all thedisclosure documents also be preserved as it would help incase of any dispute in settlement. People need to be educatedand informed about Financial Planning as well as tax savingand this provides a greater opportunity to financial productdistributer like ICICI SECURITIES, TATA Mutual Fund andReliance Money to educate people. Companies can arrangefor seminars and sessions through which they can provideinformation to people and in return can get prospective clientsfrom the audience. In this way both the audience and thecompany can also be benefited. Investment through SIPshould be encouraged. A little amount regularly invested forlong period can create a greater wealth. SIP helps in Rupeecost averaging, develop habit of saving and it providesconvenience of investment.Mutual funds could provide better advice to their investorsthrough the net and through the traditional investment routeswhere there is an additional channel to deal with the brokers.Direct dealing with the fund could help the investor with theirfinancial planning. If an investor is seeking help from advisorthen he should collect enough information of product fromdifferent sources. It will help to take proper investmentdecision and choose a right advisor. It is also necessary thatadvisor should have enough experience. Thus, the ultimateresponsibility is on the investor when it comes to takinginvestment decision.Goal should be properly divided into short term, medium termand long term. Proper allocation should be done in variousinstruments according to the time period of goal. There arevarious instruments available which can site different timeperiod needs. If investment is giving regular return or aregoing to get matured should be reinvested properly. Financialplanning is not a onetime activity, the initiative should betaken by financial planner to put this forward to their client.Regular meetings should be conducted between the financialplanner and client to review the investment portfolio. This isone area where many planners are lacking today. Follow-up,follow-up, follow-up is need of hour and it should beunderstood by financial service provider.7REFERENCES:Websites: w.in/blog/tax-savingoptions/#1 Life Insurance /tax-planning-forsalaried.html#: :text ng-tips-for-salaried-professionals/
Keywords: Financial planning, tax planning, tax saving instruments. I. INTRODUCTION Financial Planning is the process of meeting life goals through the proper management of finances. Financial planning is a process that a person goes through to find out where they are now (financially), determine where they want
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