Mutual Funds for Saving Tax

As the financial year is close to end, we all run to plan for a tax saving profile and often tend to make some hasty decisions. Instead of being late, it is always advised to plan your tax saving instruments well in advanced.

We often in order to save a huge chunk of tax, we make investments with long-term repercussions. Let us have a look at how mutual funds will help to save Income Tax.

Section 80C at a Glance of Income tax Act

Under the Indian Income Tax Act 80C, individuals can save tax for up to Rs 1, 00, 000 of investment annually. You are liable to save from the taxable amount under this act.

Introduction of Equity Linked Savings Scheme (ELSS) to save income tax

ELSS is a dedicated mutual fund scheme that allows investors to save tax. It also comes with an additional benefit of long term capital appreciation. An ELSS fund manager invests in a diversified portfolio, predominantly comprising of equity and equity related instruments that carry high-risk and have the potential to deliver high-returns. Since it is an equity fund, the returns from this scheme are market determined.

Advantages of ELSS

  • Lower Lock-in Period

The lock-in period for ELSS is comparatively lesser than other tax saving instruments. For instance fixed deposits come with a lock-in period of 5 years, PPF investments come with the highest lock-in period of 15 years.

  • Opportunity for Long Term Capital Gains

ELSS is managed by professional fund managers and majority of the investment is done in equities. Therefore, it provides maximum potential for capital gain as compared to its passive counterparts.

  • Systematic Savings

You no longer have to worry about making hasty last-minute lump-sum investments for saving tax. One can plan effectively and invest in ELSS through the SIP (Systematic Investments Plans) route.

Top 5 mutual funds companies that offer ELSS schemes

  1. ICICI Pru Tax Plan
  2. DSP BlackRock Tax Saver Fund
  3. Reliance Tax Saver
  4. Franklin India Tax Shield
  5. Religare Invesco Tax Plan