Tax Savings Mutual Funds: Investors have embraced mutual fund investments due to their promise of tax savings and healthy returns. They are less risky than buying individual company shares and offer higher returns than other traditional investment options like fixed deposits and other government schemes.
The fact that the mutual fund industry’s Assets Under Management (AUM) increased by Rs 2.2 lakh crore to a total of Rs 39.88 lakh crore in 2022 indicates its popularity.
Investing in mutual funds is becoming increasingly popular among investors due to their higher returns and tax advantages.
Let’s talk about mutual funds that lower taxes.
What exactly are tax-free mutual funds?
A type of mutual fund scheme called Equity Linked Saving Scheme (ELSS) offers tax savings as an added benefit. Under Section 80C of the Income Tax Act of 1961, these funds help investors save money on taxes. Investing in ELSS entitles investors to a tax deduction of up to Rs 1.5 lakh.
The growth-oriented equity market is typically where a tax-efficient mutual fund invests. This makes it possible for investors to generate long-term wealth and earn potential high returns.
The lock-in period for the ELSS scheme begins three years after the unit allocation date. The units can be switched or redeemed at any time after the lock-in period has ended.
What advantages do tax-saving mutual funds offer?
Under Section 80C of the Income Tax Act, investments in tax-saving mutual funds like ELSS are eligible for annual tax deductions of up to Rs 1.5 lakh.
One of the shortest lock-in periods out of all 80C investments is three years for ELSS funds.
You can invest in tax-saving mutual funds in one lump sum or as part of a systematic investment plan (e.g., weekly, monthly, quarterly, semi-annually, or annually).
Because these funds are invested in equity-linked instruments, they may provide reasonable long-term returns.
How to put money into tax-saving mutual funds
Investors can choose to put money into ELSS funds through monthly systematic investment plans (SIPs). Through a SIP, the minimum monthly investment can be as low as Rs 500.
