Which Mutual Fund to Invest to Save Tax?

There are some best tax saving Mutual funds available for investors who are willing to make use of the exemption limits provided under Income Tax section 80(C). ELSS funds are one of the best options amongst all. There are many ELSS funds available in the market, in this article we have listed down the advantages of ELSS funds.

Tax Savings under 80C You can save up to an amount of ₹1,50,000 under section 80C in ELSS. This means a saving of up to an amount ₹7,500, ₹30,000 & ₹45,000 for the investors in tax bracket of 5%, 20% & 30% respectively.

Lowest Lock in Amongst all other tax savings investment options available under section 80C, ELSS has the least lock-in period of only 3 Years. On the other hand, Tax Saving FDs & ULIPs have 5 year Lock-in and PPF has a lock-in of 15 years (with an option of partial withdrawal from the 6thyear).

Equity Exposure For competing with inflation & wealth creation Equities are the best available option. Through ELSS funds you get the Equity Exposure with considerably lesser risk than direct equity investing because of the diversification provided by mutual funds. The returns from Equity are comparatively higher than other asset classes over long term.

Tax free Returns The returns from ELSS funds are absolutely tax free. The profits from Equity Mutual funds which are redeemed after one year of investment fall under Long Term Capital Gains which are tax free. However since, ELSS investments can be redeemed only after 3 years, the returns from them are by default free of tax.

Points to keep in mind

As ELSS invests in equities, the returns have no guarantee but amongst all asset classes in the longer term equities have generated the best returns.

ELSS have a lock-in period of 3 years, so if you doSIP in ELSS, each instalment will be locked down for 3 years.

If your investment horizon is of 5 or more years, then ELSS is the best tax saving instrument available.

It is advisable to invest inDirect plansof ELSS fundsto gethigher returns.

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