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Mutual Fund Investments: Your Smart tax Saving Option

Mutual Fund Investments: Your Smart tax Saving Option

Mutual Fund Investment is a popular trend these days due to its multiple benefits. Mutual funds offer you an opportunity to harness the skillsets and knowledge of trained professionals who can manage your investments in various mutual fund avenues. Mutual funds offer higher returns when compared to other traditional modes of investment such as fixed deposits. Mutual Fund investors also have multiple investment options to choose from such as open ended schemes, close ended schemes, specialty funds and the combination of these. If you are planning to invest in mutual funds, you can choose to invest in plan that suits you the most and offers you the best chances of achieving your goals. In most cases, high risk investments have better chances of providing higher returns and lower risk provide comparatively lower returns. So, you must invest after calculating your risk appetite.

Investing wisely and subsequently enjoying the returns seems attractive but the best thing about mutual fund investment is that the investor gets tax benefits out of investing in under section 80C of the IT Act. Investments made in tax saving mutual funds are eligible for tax benefits under section 80C. Most of the tax saving mutual funds are Equity Linked Saving Schemes (ELSS) that invests in equity markets.

ELSS schemes normally come with a 3-year lock-in period, which means that the investment cannot be withdrawn until the period of 3 years ends. If the investment is made on the monthly instalments basis (SIP) then the lock-in period for each instalment turns out to be 3 years from then. So, if you make your first investment in January 2018 and the second investment in February 2018 then in January 2021 only your first instalments will be unlocked and second investment will remain locked till February 2022.

When it comes time to withdrawals, investors can see how many units have gotten unlocked and redeem them at the current NAV. The NAV (Net Asset Value) is the amount you will get for each unit. To make withdrawals, you will need to know the number of available units and submit a claim form to the mutual fund provider. They will credit the amount to your account as soon as it is processed.

Features of Tax Saving Mutual Funds

Unlike traditional investment options like PPF and NSC, you can start your investment in an 80C tax saving mutual fund with Rs. 500 and has no upper limit, unlike PPF and NSC. It is important to note that investments only worth Rs. 100,000 are eligible for tax benefits. Mutual fund investment comes with an inherent risk factor, which can either be low, medium or high depending upon the place where the funds are being invested. Tax saving mutual funds are ELSS’ (Equity Linked Savings Schemes) and are open ended funds. ELSS mutual funds also offer nomination facilities.

Benefits of Tax Saving Mutual Funds

All investments in tax saving mutual funds are eligible for tax benefits up to Rs. 1.5 lakh. Long term capital gains earned out of mutual fund investments are exempted from taxes.

Investments can help you cope with future expenses and fulfil financial goals. Tax saving mutual funds allow investors to invest on a monthly basis through SIP (Systematic Investment Plan) and hence you don’t have to pay the entire amount in one go. Investors may not be able to withdraw the principal but they can definitely withdraw the dividends earned during the lock-in period.

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