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Mutual fund investment is a very trending topic these days. Mutual fund investment offers investors to make investments in various financial instruments by utilizing the skill and knowledge of trained investment managers.
Mutual funds offer better returns in comparison to other traditional modes of investment. Mutual funds collect money from several investors and invest the amount in a balanced portfolio comprising debt securities and equity instruments. Multiple mutual fund choices allow the investors to select any fund based on their appetite and objective.
Here the question arises if investors get any tax benefits for investing in mutual funds. For example, what happens to the taxes that investors pay on their income? So, the answer is Yes; if the investment is made in a tax saving mutual fund, the tax benefits can be enjoyed under Section 80C of the Income Tax Act, 1961.
Tax saving mutual funds offers dual advantage, better returns and tax benefits. Investing in tax saving mutual funds makes you eligible for tax benefits under Section 80C of the Indian Income Tax Act. Most tax saving mutual funds are ELSS schemes and invest in the growth-oriented equity market.
Equity Linked Savings Schemes are equity funds that allow you to invest in your long-term goals and save taxes. ELSS mutual fund is also known as tax-saver funds. ELSS enables an individual or HUF a tax exemption of up to Rs. 1.5 lacs under Section 80C from your annual taxable income. Thus, if any investor is looking forward to investing Rs. 50,000 in an ELSS, this amount will be subtracted from his Gross total income, thus helping in tax saving.
The lock-in time of the ELSS scheme is three years, and the income you earn at the end of the three-year tenure is known as Long Term Capital Gain (LTCG). Long Term Capital Gain (LTCG) is taxed at 10% if the income exceeds Rs. 1 lakh.
Furthermore, investors can invest in this tax saving mutual fund via two modes: - Systematic Investment Plan and lump-sum. SIP allows investors to invest in the ELSS mutual fund scheme by paying a fixed amount at regular intervals (monthly, quarterly, annually, etc.). Conversely, the lump-sum method allows investors to invest the available funds in an ELSS mutual fund scheme in one go.
The investment capital is added to the pool once an investor invests money. The collection of the portfolio is then invested in the equity market. The fund is balanced in a way that even if one of the investments incurs losses, the other investment is managed so that the overall portfolio is not affected. For example, the breakup of an investment in a particular fund may look like this:
The above-provided table shows how a mutual fund allots assets in market securities.
Furthermore, the lock-in period for the ELSS mutual fund is 3 years, which means the withdrawal can't be made until the maturity period's end. Therefore, at the time of redemption of the units of the fund, investors can unlock the current Net Asset Value price. The unit's net Asset Value (NAV) is the amount that any investor receives on each unit redemption.
Moreover, at the time of redemption, you need to know the number of units available in the scheme and submit a claim form to the mutual fund provider. As soon as the amount is processed, the credit is done into the account.
( Note: Do check if the platform you chose offers regular plans or direct plans. It is advisable to choose a platform that offers you to buy the plan in which you want to invest.)
| Funds | 1-Year Returns (%) | 3-Year Returns | 5-Year Returns |
|---|---|---|---|
| IDFC Tax Advantage (ELSS) Fund Growth | 23.1 | 11.7 | 22.3 |
| Tata India Tax Savings Fund Growth | 14.6 | 12.3 | |
| L&T Tax Advantage Fund Growth | 16.2 | 13 | 20.3 |
| Aditya Birla Sun Life Tax Relief 96 Fund Growth | 19.3 | 12.1 | 23.5 |
| Aditya Birla Sun Life Tax Plan Growth | 18.9 | 11.6 | 22.6 |
| DSP BlackRock Tax Saver Fund Growth | 9 | 11.4 | 21 |
| Axis Long Term Equity Fund Growth | 18.1 | 9.3 | 24 |
| Kotak Tax Saver Fund Growth | -4.79 | 10.25 | 17.66 |
| Invesco India Tax Plan Fund Growth | 0.6 | 11.1 | 19.0 |
| HDFC TaxSaver Fund | -11.1 | 8.5 | 15.0 |
Investing in ELSS mutual funds make you eligible for tax deduction up to 1.5 lakh per annum under Section 80C of the income Tax Act, 1961. Additionally, it has the shortest lock-in period among all others.
When you apply for SIP with a particular mutual fund, the date when the payment must be made is informed to you. At your convenience, the date can be chosen.
This minimum amount depends on the mutual fund provider. But, generally, it is around Rs.5000.
NAV is the price of each unit of the fund on a particular day. When any investor asks for a withdrawal with a fund house, the number of units available for withdrawal is multiplied by the applicable NAV price of the units, and the calculated amount is credited to the investor's account.
Not necessarily; to determine which fund is good, see the history of the fund's returns. You can also check the rating with credit rating companies.
It depends on your convenience if you want to pay in installments or go for a lump sum investment. The benefit of investing in ELSS mutual funds via monthly installments is that the risk of loss on the entire investment amount due to market fluctuations can be avoided.
There is no cap on the maximum amount to invest.
The minimum withdrawal amount is Rs. 1000. This may vary from company to company.
The NAV and number of units available under the scheme decide the maximum amount that can be withdrawn.
Yes, NRIs can invest in tax saving mutual funds like ELSS.
