Tax-paying individuals are also 'investors.' Investors are also taxpayers. That is why its funny when individuals do not apply common rules of investing while planning for taxes.

At the end of the day, you are a successful investor if you have drawn a tax-efficient investment strategy in line with your investment objective and risk profile. Here we do just that for you.

The tax-paying investor has a slew of investment options at his disposal. You have tax-saving mutual funds (ELSS, or Equity Linked Savings Schemes), life insurance, post-office schemes and infrastructure bonds, among other options.

Some of these options like tax-saving mutual funds and post-office schemes are at extreme ends of the risk-return spectrum. On the other hand, while infrastructure bonds and post-office schemes both fall within the gamut of fixed income instruments, they are far from similar and the nuances with each require deliberation before you choose to invest in either or both.

While this may look complicated, it isn't if you get down to the brass tacks of investing.

Ask yourself some fundamental investment-related questions. Can you take on some risk? If you can, investing a portion in tax-saving funds could be a good idea. If you can't, then post-office schemes -- National Savings Certificate (NSC) and Public Provident Fund (PPF) should fit your risk profile ideally.

Are you insured as yet, if you aren't insured, then you can consider taking a life insurance policy on priority and get a tax benefit too!

To understand how you can better allocate assets within the entire gamut of tax-saving instruments, we have divided the tax-paying community into three distinct age profiles.

The reason we have chosen age as the distinguishing criteria is because appetite for risk and therefore the expected return, flows largely from one's age -- lower the age, higher the risk appetite.

If you are between 25-35 years of age:

You are young and probably married, maybe even with kids. If you are the sole breadwinner in the family then your position in the family assumes even more importance.

If you aren't insured already, then getting a life cover should be your most important priority. This will put your family in a better position to counter an eventuality in your absence.

For a detailed insurance strategy read 'An insurance strategy for you' -- tomorrow.

A tax-saving mutual fund (ELSS) fits well into your risk profile given that you are young and have age on your side. You can consider investing up to the entire Rs 10,000 limit.

You can put smaller amounts in PPF and NSC. Consider investing in both in a good mix to benefit from interest rate movements in either direction. The interest rate in NSC is locked for 6 years, while it is revised at regular intervals with prospective effect in a PPF.

For instance, if you have invested in NSC and PPF two years ago, today you would be drawing interest at 9% p.a. in your NSC, and at 8% p.a. in your PPF.

However, if the interest rate scenario was to turn and rates were to rise, then you would benefit by investing in PPF wherein rates could be revised upwards, as opposed to investing in NSC wherein rates are locked.

You can give infrastructure bonds a miss. The yield is unattractive and a study done by Personalfn in this issue of the Money Simplified shows that you are better off paying tax and investing in diversified equity funds or balanced funds depending on your risk profile.

You might want to consider buying property at this stage even if you already own one. You can buy the property on a home loan and get a tax benefit on the same under Section 88.

You would have created an important asset that you can give out on lease/rent and earn more than you would have earned in a debt fund.

If you are between 35-45 years of age:

Review your insurance portfolio. You may need to consolidate by taking additional insurance as you move up the 'lifestyle chain' and your personal net worth witnesses a surge.

The insurance policy you bought 10 or even 5 years ago, is no longer sufficient to cover your life.

At this age, tax-saving funds can still be considered. You still have age on your side and tax-saving funds in any case have a Rs 10,000 limit (for claiming tax benefits).

Our view on NSC and PPF is the same -- maintain a good mix. If you have about 1-3 years left before your PPF matures, you may consider increasing your PPF allocation as you would be getting the money back a lot sooner than the minimum 7 years.

If you are over 45 years of age:

At 45 years or above, your insurance needs are probably taken care of already. If they aren't then, you can bridge the shortfall by taking some additional term insurance.

Ensure you have a pension policy in place as retirement is less than 15 years away and your investments need to be more retirement-oriented.

A good thing for the tax-paying investor is that tax benefits related to 'Pension' fall under a different Section (Section 80 CCC) as opposed to other forms of life insurance that attract tax benefits under Section 88. What this means is that you can buy pension and term insurance for instance, and still get a dual tax benefit.

You can invest in an ELSS provided you aren't too close to retirement (around 60 years), in which case the risk-return profile of the mutual fund scheme would work against your own.

At this stage, your PPF account is probably close to maturity in which case it makes more sense to increase investments in PPF. You not only get a tax benefit, but can also make withdrawals relatively sooner.

Having read our recommended asset allocation for investing to save tax, there are some important pointers for investors:

Exhaust the Rs 100,000 investment limit by first taking life insurance before considering any other investment.

Tax-saving funds can be considered depending on your age. If you are over 55 years old you may want to reduce allocations to tax-saving funds.

Maintain a good mix of NSC and PPF to ensure that you can benefit from interest rate movements either ways.

Infrastructure bonds can be ignored. Pay the tax instead and invest in diversified equity funds, balanced funds or even MIPs depending on your risk profile.

Consider taking a property on a loan. You will get tax benefits on the loan for creating an asset that can generate revenues for you going forward.

This article forms a part of the latest issue of Money Simplified - The Definitive Guide to Tax Panning. Click here to download, for FREE, the complete guide.