All You Need to Know About Tax Saving Mutual Funds

Investing in mutual funds may be less rewarding if there is tax. It is important to know about tax-saving mutual funds such as ELSS (Equity Linked Savings Scheme). Tax savings up to Rs. 1.5 lakhs invested in an ELSS funds in a financial Year under Sec 80C. After three years, your invested amount will remain locked in. You can then switch to another unit or redeem it. You can choose to invest in a dividend option or growth option, as well as via SIP (Systematic Investment Plan).

The Benefits of ELSS Fonds

  • You can save taxes on mutual funds while still getting high returns.
  • Lock-in takes just three years. This compares favorably to five years for fixed deposits and 15 years for PPF.
  • ELSS can be one of the most tax-saving mutual funds. You can get long-term gains that reduce tax rates.
  • Redemption is optional after three years. You can also choose to invest in ELSS for a longer term.
  • You can earn handsome returns if you put in five to ten years.
  • ELSS funds offer higher returns than other tax-saving instruments because they are equity-oriented. ELSS funds can earn you returns between 15-20% and more.
  • There is no need to invest in bulk, but you can use the SIP option instead to set up regular instalments of your money.
  • Furthermore, ELSS funds can be transparent and secure, so you are guaranteed the security of your capital.
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The flip side is that if you have any other investments under Sec80C such as life insurance, PPF repayment of home loan, etc. then your benefits for an ELSS investment will be limited because the total tax deduction for all investments made under Sec80C is only Rs. 1.5 lakhs.

Contact a Mutual Fund Advisor

Professionals don’t have the time or resources to research mutual funds thoroughly and could end up investing in poor performing schemes. To help them choose the right plan, they should consult a advisor. To help you make informed decisions, the advisor will inform you about the scheme objective and risks, as well as the investment universe.

mutual funds advisor will take the time to understand your financial situation and suggest appropriate investment options. You can also ask them questions about the schemes. The advisor will also help you with the periodic review of your plans after you have built your portfolio. This will allow you to keep up to date on the status and investments.

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How to Reach Your Financial Goals

The investments you make will depend on your financial goals. You may have long-term or short-term goals that will determine which investments you make. Equity mutual funds are a good option if you’re willing to take on risk. If you are not comfortable taking on risk, you might be better off investing in fixed deposits or debt funds.

Liquid funds are best for short-term needs. You can choose liquid funds for short-term needs, while income funds are best for medium-term goals. Equity funds or a combination of both will work well for long-term objectives.