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How to Invest in Tax Saving Mutual Funds?

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Created on
April 18, 2023

Summary

What’s Inside

As an investor, you may want to save everything you earn through investments. These earnings might enhance your monthly income and help pay off loans. But, one mandatory aspect can hamper your savings plans – taxes! What’s the solution here? By selecting income tax saver mutual funds.

These funds allow you to enjoy tax deductions as per Section 80C of the Income Tax Act. You can invest in these funds through a SIP or a standard mutual fund investment.

Let’s learn more about it!

Why Invest In Tax Saving Mutual Funds?

Tax saving mutual funds allow you to reduce the amount of taxes you pay for your investments.

For example, the Equity Linked Savings Scheme falls under Section 80C of the Income Tax Act and reduces your tax payments. It enables you to save up to ₹46,800 and get a tax rebate of ₹1,50,000.

As their asset allocation is directed toward equity-linked securities, you can earn excellent returns. Usually, these are way more than fixed deposit earnings.

Another advantage of these income tax saver mutual funds is their emergency fund withdrawal process. They come with a lock-in period of 3 years, but you can withdraw the money before that. As there are no additional expenses for premature withdrawal, you can save money here too!

So, new investors and taxable citizens can invest in ELSS and other types of tax saving funds.

Tax Saver Mutual Funds Investment Process

You can invest in these tax saving mutual funds like your regular investments. This investment choice will depend upon your financial condition and requirements. In general, there are two common strategies - SIP and lumpsum investment.

If you are in a hurry to invest and start saving taxes, choose a lumpsum investment. This way, you can invest a substantial amount and begin saving taxes after getting returns. However, make sure that you have the financial backup to handle market volatilities and losses.

The next most common investment strategy is through a systematic investment plan (SIP). As ELSS funds are great for long-term earnings, many investors choose SIP.

Moreover, ELSS funds allow you to invest with a small amount, like ₹1000. So, inexperienced investors will find SIP appropriate.

Factors to Consider Before Investing In Income Tax Saver Mutual Funds

Before investing in ELSS or any new tax saver mutual funds, you need to check your financial condition. You must invest, keeping the probable losses in mind.

Here are some other factors to consider –

  • Market performance of the tax saver fund
  • Operational expenses
  • Third parties involved
  • Your risk-taking appetite
  • The condition of your emergency fund

The Bottom Line

Equity-Linked Savings Scheme (ELSS) mutual funds are a type of mutual fund that primarily invests in equity shares of companies with a diversified portfolio. These funds serve the dual purpose of providing tax savings under Section 80C of the Income Tax Act as well as capital appreciation over the long-term.

Fi Money offers commission-free Mutual Fund investments through an easy-to-use platform that caters to both novice and experienced investors. It boasts a selection of over 800 direct Mutual Funds and is completely secure as it is guided by epiFi Wealth, a SEBI-registered investment advisor. Simplifying investment steps, Fi allows for daily, weekly, or monthly investing through automatic payments or SIPs with just one tap. Additionally, Fi offers flexibility with no penalties for missed payments. You can read more about the advantages and disadvantages of ELSS Mutual Funds here.

Frequently Asked Questions

1. Which Mutual Fund Is Best For Tax Saving?

Besides ELSS, other high-quality tax saving mutual funds include Quant Tax Plan, Canara Robeco Equity Tax Saver Fund and Kotak Tax Saver Fund.

2. How Do I Buy Mutual Funds For Tax Savings?

You can buy income tax saver mutual funds through a SIP or lumpsum investment. You can contact an online broker or fund manager for this.

Disclaimer

Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.
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