How do Mutual Funds Help You Save Tax?

Its again that time of the year when you need to make the necessary savings to save tax. Often people make wrong or not so beneficial decisions on their investments. On the other hand, Mutual Funds although are subject to market risk, still gives you maximum returns for most of the times. And yes, now you can invest into mutual funds to get that tax saving as well.

What kind of mutual funds help in tax saving?

ELSS or Equity linked saving schemes are your option under tax saving mutual funds. You may invest maximum amount of one lakh fifty thousand on them and save around forty-six thousand rupees paid as taxes. This fund suffices you tax saving option under section 80C. Also, this funds have locking period of just three years which is less than most of the government saving plans and debentures.

Who can invest into ELSS?

An individual or a HUF can invest into ELSS mutual funds. Mostly this is also restricted only for citizens of India and NRIs who have USA or Canadian citizenship are not allowed to invest into any such fund. However, NRIs living in other countries can invest into ELSS. You need to read the offer document to know more about it.

Benefits of investing into ELSS mutual funds.

Here are few factors which make ELSS a better investment than other options available in market.

  • Since the fund invest mostly into market equities, hence potentially have maximum gains in shorter period. Thus, it provides an edge over other kind of tax saving schemes which are mostly deployed as government or banks see them fit and have low risk factor.
  • This fund has comparatively lowest locking period, which is just three years. When compared to other tax saving options like NPS locked until your retirement, and PPF locked for straight fifteen years, this option provides you earlier liquidity option.
  • The ELSS funds come with double tax saving option. One they help you save on tax amount and second it also helps in saving any interest or income earned on them as dividend. This is because all the capital gains on an ELSS is tax free.
  • Investment amount on ELSS can be as low as five hundred rupees a month and can be automated in form of monthly SIPs. There is no higher limit to the amount of investment.
  • Gives you various options to choose from the sector or a group of mutual funds which come under ELSS. Hence you have an investment choice as per your market insight. You are not limited by one form of scheme for your investment.

Investment Options under ELSS

The ELSS comes with two investment options, growth linked and dividend linked. In growth linked you get the lumpsum amount at the end of investment period. However, dividend link pays you the dividend as and when offered under the scheme. In both the option, you do not have to pay any taxes further. Also, if you opt to re-invest your dividend, then it would be considered as fresh investment and you can opt to get a tax rebate on this amount.

Risk Factor associated with ELSS

Only downside of investment into ELSS are they are subject to market risk. Although, the trend shows that they have never dipped in last thirty year and have always provided positive return to its investors, still you can be always sure about how the market shall turn next moment.

This kind of investment is usually for people who can afford moderate to high risk.

The XYZ Ltd have brought a new online platform which helps you choose from all the market options to invest into mutual funds. This also includes tax saving mutual fund schemes. The platform is free to use and do not charge you any amount to use. Also, it provides you access to market intelligence and market experts who can optimize your investments.

Mutual Funds Investment Sahi Hai !