Inflation is on the rise in India and hence our savings are depleting slowly. The need of the hour is an investment instrument that not only survives inflation but also reap impressive returns. One such investment option is Tax saver Mutual Fund i.e. ELSS, which not only saves your tax but also is a prudent investment option for wealth creation.
Every mutual fund scheme has category and objectives that are pre-defined. Tax saver mutual fund invests in equity markets and has a lock in period of 3 years before which they cannot be redeemed [principal is blocked; dividend payout option available] The term is commonly referred as lock-in period.
Mutual fund returns are dependent on the risk the scheme composition is willing to take. High risk fund offer high returns, medium risk offer medium returns while the low risk fund aims to keep your principal safe.
How tax saver mutual funds help save tax
Tax saver mutual fund offer tax benefits of upto Rs 150,000 under Sec 80C of the Income Tax Act, 1961. This implies that for investors falling under the highest tax bracket can save upto Rs 46,800 in taxes. You can invest more than the prescribed amount, however, the excess amount does not qualify for tax benefits.
As per the latest tax revisions, Capital gains and Dividend payout from ELSS are subject to 10% tax if the gains exceed Rs 1 Lakh. Despite these changes, Tax Saver mutual fund still remains the most popular investment option under Sec 80C.
Choosing tax saving mutual funds to invest in
You can choose a Tax Saver Mutual Fund basis various factors like past fund performance, fund manager managing the fund and most important after consulting your Financial Advisor.
You can invest through Lumpsum or Systematic Investment Plan [SIP] which allows you to invest small amounts every month instead of lump sum payment.