Comparte Capital Investment

What is tax saving mutual funds and how can it help create long term wealth

The long-term capital gains under tax-saving mutual funds are not taxed

At the time of the redemption of the fund’s units, investors can redeem only the units that are unlocked.


People choose mutual funds to invest their money to generate returns. They invest either a lump sum amount or opt for SIP for their investing. But many people do not know mutual fund schemes that are beneficial to save taxes. Indeed, people do not prefer paying too much in taxes. And they look for different investment choices like insurance premiums or EPF contributions that help them to save their hard money from paying too much tax. Now one more investment option also helps you to save tax, that is, Equity-linked Savings Scheme. It is a special type of equity mutual fund that helps you to save tax while generating returns. This article helps you to get an idea about tax-saving mutual funds and how it works.

What are tax-saving mutual funds

Choose tax-saving mutual funds for wealth generation as these schemes can offer better returns compared to other investment options. These funds have the features of any other mutual funds, but it has the added advantage of tax-saving. People, especially the working class, prefer tax-saving mutual funds because these have the potential to offer tax benefits to investors under 80C of the Indian Income Tax Act. Major tax-saving mutual funds are ELSS schemes, and most of its corpus invests in the growth-oriented equity market.

How tax-saving mutual fund work

Mutual funds are a preferred investment option for many people. It collects money from various investors and later fund managers invest that money in a balanced portfolio that comprises both equity and debt instruments.  The fund managers invest the corpus in the portfolio in the equity market in a balanced way in order to ensure guaranteed returns. Even if one investment in the portfolio incurs losses, they can recover the losses from other investments. The tax-saving mutual fund like ELSS schemes comes with a lock-in period of three years. That means you cannot redeem the investment before the end of the maturity period. For investors who opt for SIP for investment have a lock-in period of three years of each installment. At the time of the redemption of the fund’s units, investors can redeem only the units that are unlocked. They can redeem those funds at the current NAV price.

Features of tax-saving funds

  • Tax-saving funds are Equity-Linked Saving Schemes and open-ended.
  • Tax-saving schemes allow investors to invest even with Rs.500.
  • Even though there is no upper limit to invest your money, you are eligible for tax benefits only up to Rs. 100,000.
  • Investment in tax-saving mutual funds comes with a lock-in period of three years.
  • Since these are similar to mutual funds, your investment in tax-saving funds is also prone to market risks.
  • These funds offer nomination facilities
  • Most of the tax-saving funds come with entry and exit loads.

Benefits of investing in tax-saving mutual funds

  • Your investments in tax-saving funds up to Rs.1,50,000 are eligible for tax-benefits
  • The long-term capital gains under tax-saving mutual funds are not taxed.
  • The portfolio assets of such funds are invested in different areas to minimize risks and losses.
  • It allows withdrawing the dividend but not the principal amount.
  • If you do not withdraw the investment, it will continue to grow and generate good returns.

Financial planning is very important and a necessity in the modern world. Whatever may be your earning capacity, you need to save some money and invest properly to fulfill your financial goals. As a taxpayer, you always prefer to save money. By investing in tax saving mutual funds, you can claim tax benefits up to Rs.46,800 if you invest up to Rs.1,50,000. Some tax saving schemes like Equity Linked Saving Scheme (ELSS) helps investors to save tax while creating wealth. If you consult your financial advisor, he can give more information on different tax-saving mutual funds and how such funds help you to generate wealth in the long run.

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