January 30, 2023

What are Tax Saving Mutual Funds? Check benefits, and how to invest

Tax Saving Mutual Funds: Mutual fund investments have been popular among investors as they promise the double benefit of tax saving and healthy returns. They offer better returns than other traditional modes of investment such as fixed deposits and other government schemes while requiring lesser risk than buying shares of individual companies.

Its popularity can be gauged from the fact that Assets Under Management (AUM) of the mutual fund industry rose by Rs 2.2 lakh crore to reach a total of Rs 39.88 lakh crore in 2022.

Mutual funds are gaining popularity among investors because of higher returns and only this you can also save tax benefits.

Let’s know about Tax Saving Mutual Funds.

What are Tax Saving Mutual Funds?

Equity Linked Saving Scheme (ELSS) is a type of mutual funds scheme with the added advantage of saving tax. These funds help investors save taxes under Section 80C of the Income Tax Act, of 1961. People who invest in ELSS can get a tax deduction of up to Rs 1.5 lakh.

A tax-saving mutual fund typically invests in the growth-oriented equity market. This enables investors to earn potential good returns and help create long-term wealth.

ELSS scheme has a lock-in period of three years from the date of unit allotment. After the lock-in period is over, the units are free to be redeemed or switched.

What are the benefits of tax-saving mutual funds?

Investments in tax-saving mutual funds like ELSS, qualify for tax deductions up to Rs 1.5 lakh per annum under Section 80C of the Income Tax Act.

ELSS funds have a lock-in period of 3 years which is one of the shortest lock-in periods among all 80C investments.

You can invest in tax-saving mutual funds via a systematic investment plan (i.e. weekly, monthly, quarterly, semi-annually or annually) or as a lump sum in one go.

Investing in these funds potentially generates reasonable returns in the long term as they are invested in equity-linked instruments.

How to invest in tax-saving mutual funds

Investors can opt to invest in ELSS funds through monthly SIPs (systematic investment plans). The minimum investment through a SIP can be as low as Rs 500 per month.

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