A large number of people invest in mutual funds with the intention to save and build a pool of fund for future purposes. However, not many people know that mutual fund investments are an excellent avenue for saving tax
Today, mutual fund investment are extremely popular, and if the statistics are to be believed, the number of investors have increased by leaps and bounds over the last decade or so and the number is expected to grow even further. Mutual funds not only inculcate the habit of monthly savings but also help you grow your savings while being under the tutelage of trained professionals who not only manage your investments but also provide the right knowledge and tips on how to identify and invest in profitable funds. One of the main advantages of investing in mutual funds is that it gives you a free hand in terms of choosing your investment instruments depending on your financial goals. So depending on what you are planning to achieve from your investment, you can invest in debts or equities or both. However, you need to know one ground rule, invest only in funds, which suit your risk taking appetite.
Apart from the valuable returns that mutual funds offer, one of the most important aspects that attract several investors is that certain type of mutual funds offer valuable tax savings. The tax savings on mutual fund investment comes under the section 80 C of the Indian Income Tax Act. So if you are wondering what are tax saving mutual funds? It is just like any other fund with the added benefit that these funds are eligible for tax-saving. Most of the tax saving funds are ELSS (Equity Linked Savings Scheme), and the funds are invested in equities. There are typically two types of ELSS – the dividend scheme and the growth scheme. One of the major differences between the two is that in the dividend scheme, the investor gets an additional income based on the dividend. Also, the dividend is subject to tax or lock-in period, which can be reinvested in the fund and the fund will become eligible for tax benefit. However, the growth ELSS do not have such provision of tax benefit.
Features of tax savings funds
- If you are looking for an India opportunities fund that does not require you to invest a large sum, then the ELSS would be a perfect choice. You can start investing with as low as 500 INR, and there is no upper limit for the maximum amount you invest in the fund, unlike the PPF (public provident fund) or NSC (National Savings Certificate).
- While there is no upper limit on the amount you can invest, you must know that the tax savings will be applicable only on investment work 100,000 INR.
- The tax-savings mutual funds have a minimum lock-in period of three years.
- Being mutual funds, these investment tools have the risk factor associated with it, which can affect the returns based on where the funds are invested.
- The mutual funds also allow you to nominate a benefactor
- Most of the ELSS schemes have entry and exit loads, which mean a certain fee is applicable while you enter or exit the funds.