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All About Tax Saving Mutual Funds

Author: Shashank Pawar
by Shashank Pawar
Posted: Jan 18, 2019

Save Tax through ELSS Mutual Funds in a smarter way!

There are various schemes which help you in generating a good amount of wealth namely Fixed Deposit, PPF and many more. However, you may have to pay tax on returns earned through these schemes. Thus, to overcome this hurdle ELSS investment option has been created.

So let us find out what is ELSS fund?

ELSS mutual funds are generally known as Equity Linked Saving Schemes who has high returns and has a different tax system.

Features of ELSS Mutual Funds

  • Till 31 March 2018 returns on such schemes are not taxable. However, after 31 March 2018, if profit earned is above Rs 1 lakh tax on returns are at 10%.
  • Another feature of ELSS mutual funds is they come with a lock-in period which is of 3 years. It means for 3 years for the date of purchasing these funds, you cannot sell or redeem units. After 3 years get over, you can freely redeem, sell or switch the units.
  • These tax saving mutual funds let an individual or HUF to avail deduction up to Rs. 1.5 lacs from the overall income. This falls under Sec 80C of Income Tax Act 1961. For instance, if someone is investing Rs 50,000. He or she will get the tax benefit and thus ultimately the burden of the tax will be reduced.
  • One can choose growth or dividend option under these funds.
  • Also, there is an option to invest via Systematic Investment Plan (SIP) or onetime investment called a lump sum investment, whatever an investor feels convenient. With investment done using SIP in ELSS mutual funds, one can meet overcome the volatility in the market.
  • ELSS mutual funds do not have any maximum limit. This generally means that an investor can invest the amount as per their risk-taking ability and desire to earn high returns.
  • As the investment in this fund is locked for 3 years, you cannot redeem the amount, not even if the market is unfavorable. It leads to less outflow and creates panic in mind of an investor during the bearish time. It ultimately leads to greater chances of capital growth.
  • ELSS mutual funds consist of portfolio majorly in stocks. They work with the objective of providing long term gains in investment which is mainly done through diversification of portfolio among different types of companies under varied sectors.
  • Points to keep in mind before investing in ELSS Mutual Funds

  • One should review the historical performance of the funds for choosing the appropriate fund.
  • Size of the funds which have large Asset under management (AUM) should be compared. But this will not be applicable in terms of new funds.
  • You should select ELSS mutual funds which do not involve additional costs.
  • To conclude, if one has invested for a longer period, ELSS mutual funds are definitely one of the best tax saving mutual funds, especially those investors who can take a high amount of risk. Visit us to know more about Mutual Funds Information.

    About the Author

    Here's a little bit about myself. I've done a Masters in Economics and teach the subject to high school students. I am 32 years old and married to an investment advisor. A Dhoni fan who loves to play football! I am a sports enthusiast and a firm beli

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    Author: Shashank Pawar

    Shashank Pawar


    Member since: Dec 24, 2018
    Published articles: 46

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