Mutual funds are professionally-managed schemes that pool in money from several investors. These investors can be institutional or retail in nature. Their many advantages are behind their popularity – diversification, economies of scale, liquidity, and experienced investments. They present a relatively simple option since they offer a route to invest money in a professionally-managed manner at a relatively low expense.
However, many investors choose mutual funds for the tax benefits they offer. Let’s take a look at them.
Mutual Fund Tax Benefits
Equity Linked Savings Scheme (ELSS) are a type of equity mutual funds that invest most of their corpus in equity and related assets. What makes them special is that they help investors with tax saving, under section 80C of the Income Tax Act, 1961. With these tax-saving mutual funds, you can claim a reduction in your taxable income.
You can claim tax deductions of up to Rs 1.5 lakh with an ELSS fund. This means that your investments of up to Rs. 1.5 lakhs done in an ELSS are eligible for tax deduction. Compared to PPF, NSC and other tax-saving instruments, ELSS demand a 3-year lock-in period, the shortest among these. This makes them suitable for both short and long-term investment. However, financial advisors suggest continuing your investment for the maximum duration to maximize your returns. Do note that if you have an ELSS Systematic Investment Plan (SIP), each instalment comes with a lock-in period of 3 years.
What makes ELSS mutual funds a particularly attractive option is that you get to enjoy the dual benefits of tax-saving and wealth accumulation. Because these funds invest in equity, the return potential is higher than other tax-saving investments.
The long-term capital gains you earn on your ELSS investment are tax-free up to Rs. 1 lakh. Over this limit, gains will attract a tax rate of just 10%. However, the dividends you earn on these funds will be added to your income and taxed.
Buy Mutual Funds Online with Ease
For tax-saving benefits, ELSS funds offer one of the best investment avenues. You can use any of the multiple mobile applications available today to easily invest in mutual funds online and realize tax savings, among other benefits. Begin your journey of structured tax planning and investment today. Start your homework and find the right platform that allows you to choose from a wide array of fund schemes and other financial products.