Tax-saving investments should align with the financial goals. In this regard, mutual funds investment extends the benefit of tax saving as well as steady returns.
While extending better returns as compared to fixed deposits, investments in mutual funds are less risky than investing in stocks of individual companies.
As per the Association of Mutual Funds in India (AMFI) data, the assets under management (AUM) of the mutual funds industry witnessed a rise by 2.2 lakh crore to touch a total of Rs 39.88 lakh crore in 2022 alone.
Equity-linked saving schemes (ELSS) are a type of mutual funds scheme that is known to extend tax benefits. An investor can invest in ELSS mutual funds scheme and save taxes under Section 80C of the Income-tax Act (ITA), 1961. A tax deduction of Rs 1.5 lakh in a financial year can be claimed for investing in ELSS. The investment in the ELSS scheme needs to be undertaken prior to March 31 to save taxes.
ELSS mutual funds schemes are of types:
Growth funds: ELSS growth option funds pay an individual the full redemption amount as a lump sum at the time of redemption. This remains an ideal wealth-creation tool.
Dividend funds: ELSS dividend option funds pay an investor dividends on a routine basis through the investment. An individual can choose to receive these dividends on payout or reinvest it for future returns.
While the lock-in period for investing in an ELSS mutual fund scheme is for three years. ELSS scheme can offer steady returns in case of a long investment horizon of at least five to seven years. For instance, the ELSS tax-saving mutual fund schemes have offered a return of at least 14.21% for a 10-year period.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.