What are tax saving mutual funds?
Answer: Tax Saving Mutual Funds, also known as Equity Linked Savings Schemes (ELSS)is a unique type of mutual fund that offers you. Dual benefits:
- Tax savings: Up to investment in ELSS Rs 1.5 lakh per annum are eligible for deduction under Section 80C of the Income Tax Act, 1961. This means you can reduce your taxable income by the amount you invest in ELSS, thereby reducing your tax liability.
- Capital Growth Prospects: Like other equity mutual funds, ELSS invests primarily in the stock market. This exposes you to potential. More profit Compared to traditional options like Public Provident Fund (PPF) or Fixed Deposits to save tax in the long term.
Here are some important points to remember about ELSS:
- Lock-in period: ELSS has a mandatory lock-in period. 3 years By investment date it means that you cannot withdraw your money before the lock-in period ends.
- Investment horizon: ELSS is best suited for long-term investment goals (ideally 5 years or more) due to its equity-based nature. Stock markets can be volatile in the short term, but historically, they have provided good returns over the long term.
- Risk involved: As ELSS invests in equity, it carries inherent risk. The value of your investment may fluctuate based on market movements. However, if you have a long-term investment horizon and can handle some volatility, ELSS can be a good option for your tax saving needs.
Here are some additional things to consider before investing in ELSS:
- Investment Amount: You can invest in ELSS through lump sum payments or through Systematic Investment Plans (SIPs). SIPs allow you to invest a fixed amount at regular intervals, which can help you build your investment corpus over time and average out the cost of your investments.
- Fund Selection: There are many different ELSS funds available in the market. It is important to compare different funds based on their performance, risk profile, and investment objectives before making a decision.
