Tax saving mutual funds (ELSS)
What’s better than being able to save tax and invest in equity mutual funds at the same time? With Tax saving mutual funds also known as ELSS (Equity Linked Saving Scheme), you can!
What is tax saving mutual fund (ELSS Fund)?
As per SEBI’s classification of mutual fund schemes, an ELSS or tax saving, invests at least 80% of its assets in equity. As any other mutual fund scheme, ELSS fund can be closed ended and open ended. Investing in This Category of mutual fund scheme qualifies for tax deductions under 80 C of the Income Tax Act, with the limit of Rs. 1.5 lakh.
However, unlike other mutual fund schemes, ELSS funds have a lock in of 3 years.
Benefits of investing in tax saving mutual funds
Dual benefit
Investment in such mutual funds will not only give you the advantage of equity mutual fund returns but also will help you to save tax upto Rs. 1.5 lakh.
Hence you can also create long term wealth, whilst saving taxes at the same time.
Option to invest monthly
Like any other mutual fund, you can choose to invest through Systematic Investment Plan mode. Hence, you can get the benefit of market movement. Further, there is no upper cap on investment amount.
Higher returns than any other tax saving instrument
Unlike other tax saving instrument like Public Provident Fund, National Savings Certificate etc., which offer interest rate up to 9%, tax saving mutual fund schemes offer returns more than 9%. Hence, any day, they offer better inflation adjusted returns than the traditional tax saving options.
Tax Saving Mutual Funds Vs Other Tax Saving Options
| Products | Interest Rate | Time Horizon (in years) |
| Public Provident Fund | 7.90% | 15 |
| Sukanya Samradhi Yojna | 8.40% | 21 |
| National Savings Certificate | 7.90% | 5 |
| Bank Fixed Deposits | 6.25% | 5 |
| Senior Citizens Savings Scheme | 8.60% | 5 |
| Post Office Timed Deposits | 7.70% | 5 |
| Equity Linked Savings Scheme* | 11.77% | 3 |
| Data as on January 2020 | ||
| *average of top 5 performing funds | ||
Disclaimer: This table is prepared on the basis of information provided by internal source. The information provided is solely for creating awareness and educating investors/ potential investors about rules of investment for their general understanding. Readers are advised not to act purely on the basis of information provided herein but also seek professional advice from experts before taking any investment decision. WC Securities does not accept responsibility for any investment decision taken by the readers on the basis of information provided herein. The above rteturns mentioned above in the table are changed periodically. Kindly confirm before investing.
Is Tax Saving Mutual Fund Scheme a good investment option?
Tax Saving Mutual Fund Scheme has the lowest lock in period among the tax saving options. However, when it comes to equity, it is recommended that one should stay invested for at least 5 years.
In comparison to the other tax saving options, ELSS schemes, offer better interest rate return. Hence, it is indeed a good investment option.
Best Tax Saving Mutual Fund Scheme
There are certain ELSS Mutual Fund Schemes, which have performed better in the past than any other scheme in its peer group.
You can find it for yourself which are the funds suit you here. You can sort them on the basis of performance, star rating and AMC as well.
How to Invest in Tax Saving ELSS SIP?
If you want to save taxes and generate a good return over a period of time, then SIP in equity linked savings scheme is the best option. As already mentioned above, you can save upto Rs. 1.5 lakh of benefit. So depending upon your income (whatever amount above Rs. 6 lakh), you can invest. The process is like that of any other mutual fund investment. Contact us for more details!