Comparte Capital Investment

What are mutual fund tax benefits

During the lock-in period of Tax Saving Mutual Funds ELSS you can withdraw the dividends earned

The nature of Equity linked saving schemes are mutual fund so the investment made in these schems are prone to market risk


People use different alternatives during financial planning to limit their tax liability. And many people, especially the working class, find mutual funds as a great option for getting deductions and exemptions from tax. An individual can claim tax deductions in India from his or her taxable income through sec 80C of the Income Tax Act, 1961, by investing in certain mutual fund schemes. Equity Linked Saving Schemes (ELSS) is one such alternative that helps investors to claim a deduction from their annual tax liability. Let us understand more about the tax benefits of mutual funds, and how you can claim tax deduction with this investment instrument.

Mutual funds- a simple way to get tax benefits

Tax planning is not an easy process, but you can easily enjoy tax benefits by investing in mutual funds. Many working-class choose mutual funds when it comes to investment, not only because of its ease of investing or great liquidity but also for the tax benefits that it offers. An investor needs to choose the right mutual fund schemes for investing if he or she needs to reduce tax liability. Mutual funds are mainly classified into two categories, Equity mutual funds, and Debt mutual funds. In Equity mutual funds, the major part of the money collected from investors invested in equity shares whereas, in debt mutual funds, the money mainly invested in debt or fixed income earning instruments.

Direct Mutual Fund Plan

The Securities and Exchange Board of India has been introduced the first direct mutual fund plan on 1st January 2013. As a regulator of asset management companies, SEBI has made it compulsory for Asset Management Companies to allow investors to buy direct plans to invest without the involvement of any brokers, agents, or distributors. The expense ratio is the only difference between the regular plan and direct plan. Since you are investing directly with the fund house in the case of a direct plan, there is no need to pay any commission to the agent or distributor.

Tax benefits of mutual funds

One of the main reasons why people choose mutual funds for investing money is the tax benefits that it offers. Not many people know that mutual funds are not just building blocks to create wealth, but also a smart option for tax saving. As per section 80 C of the Indian Income Tax Act, you can invest up to Rs.1.5 lakhs in different investment instruments to claim tax deductions. Investing in an equity-linked saving scheme is an amazing way to save a maximum tax saving of Rs.46, 800. You can deduct the money that you invested from your reported income while assessing the total taxable income for the financial year.

Tax saving mutual fund schemes

You can opt for an equity-linked saving scheme (ELSS) if you look for a tax saving mutual fund scheme for investing your money. This scheme, invest in equities, provides the option to choose either growth or dividend option for the investors. You are eligible for a tax deduction for any amount up to Rs. 1.5 lakhs if you choose an equity-linked saving scheme for your investing. These mutual fund schemes have a lock-in period of three years, which is the shortest one compared to other tax savings schemes like the National Savings Certificate, Public Provident Fund, or the National Pension Scheme. Apart from tax-saving benefit, such schemes also help investors to earn better returns if they opt for long-term investing.

How ELSS works

All investments under section 80 C are subject to a minimum lock-in period, and it is three years in the case of ELSS. That means you cannot take your money out for three years, which is an attractive feature of this investment plan. You can opt for this scheme whether you want to invest in it in a lump sum or through SIP. If you invest in your Equity-linked saving scheme through SIP, then each installment in this scheme over the years have a lock-in period of three years. The investments in this scheme may be turned as an open-ended scheme once its lock-in ends.

If you are a smart investor, take advantage of tax benefits by investing in mutual funds. It is a great way not only to grow your wealth but also to claim deduction on your tax liability. Investing in tax saving mutual fund schemes like ELSS not only help you to generate wealth, but also to fulfill your financial objectives undeterred by inflation. With the shortest lock-in period of three years and the benefit of a tax deduction for the investment up to Rs. 1.5 lakhs, the ELSS is the best mutual fund investment option for saving your tax. So, choose the right mutual fund scheme to get financial independence and save taxes.

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”, so let me do Nivesh