loader2
Partner With Us NRI

Which are the best Tax Saving Mutual Funds?

One of the consolations of paying income tax is the deduction you are able to avail under various sections of the Income Tax Act. In the Budget of 2020, the government has offered taxpayers two choices – deductions with higher taxes, and no deductions with lower taxes.

If you want to avail of deductions, your best bet would be investments under Section 80C. Why? Because it allows you to reduce your taxable income by as much as Rs. 1.5 lakh a year through investments in specified instruments. One of the favourite investment avenues is the Equity-Linked Savings Scheme (ELSS), which is essentially an equity mutual fund that invests in shares of different companies.

Of course, you have other options too. These include Public Provident Fund (PPF), Voluntary Provident Fund, five-year fixed bank deposits, National Savings Certificates (NSC) and various insurance schemes for you and your family. However, there are huge differences in the risks, returns offered as well as the lock-in periods among all these options.

ELSS offers the best returns as well as the shortest lock-in period of all these investment options. Though there are no guaranteed returns because returns on ELSS funds are linked to market performance, equity generally has delivered the best returns among all asset classes over a longer term in the past few years.

What exactly is ELSS?

ELSS are essentially open-ended equity mutual funds which are eligible for deductions from taxable income up to Rs. 1.5 lakh in a year under Section 80C of the Income Tax Act. They have a lock-in period of three years, after which you have the choice of redeeming them or continuing with the investment.

However, returns from ELSS are subject to long-term capital gains (LTCG) tax if you redeem them after three years. You have to pay LTCG tax of 10 percent on any LTCG gains over Rs. 1 lakh in a financial year.

Best tax saving mutual funds

You now know what ELSS funds are, but you must also know that all funds are not alike. There are many asset management companies with ELSS funds of their own. Each ELSS fund may invest in different stocks and their performance could vary. Here’s how you can pick the best tax saving mutual fund:

  • Returns:

    There are many web sites that offer comparisons of mutual funds. Choose an ELSS fund that offers best returns over different time periods, like a year, five years or ten years. Choose one whose performance is consistent over the years.
  • New fund, old fund:

    Usually, people invest in new fund due to the low NAV and think that growth would be high but that does not mean all new funds are a good choice. The performance of any fund depends upon market returns, fund manager capabilities and other related factors. In existing fund, you have an advantage to check previous track record and history which you will not know for a new fund.
  • Fund house:

    Choose a fund house that has a good reputation and performance history in the market.
  • TER:

    Keep an eye out for the Total Expense Ratio or TER, which is what the fund house charges to manage your ELSS fund to pay for administrative and other expenses. Higher TER pulls the NAV of a fund downwards, so it is better to strike a balance between fund returns and its expense ratio.

 

Above are some of the ways in which you can find the best tax saving mutual funds. These ELSS funds are a great way of not just saving income tax, but to create wealth too. Don’t ignore them while doing your tax planning.

You can invest in ELSS and other mutual funds through ICICIdirect. Click here to know more.

Disclaimer: The contents herein mentioned are solely for informational purpose and shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.

Most Popular

  • 18 Jan 2022
  • ICICI Securities

Upcoming Union Budget 2022: F&O Trading and Risk Management Strategies you Should Note to Manage Risks Better

The Union Budget of India, also referred to as the Annual Financial Statement in Article 112 of the Constitution of India, is the annual budget of the Republic of India. The Government presents it on the first day of February so that it could be materialized before the beginning of new financial year in April.

  • 17 Jan 2022
  • ICICI Securities

TCS announces Rs 18,000 crore share buyback: How can Investors benefit from the opportunity?

Tata Consultancy Services Limited board on 12th Jan, 2022 approved a proposal to buy back upto 4,00,00,000 Stocks for an amount not exceeding Rs 18,000 crore at Rs. 4,500 per share. 

  • 12 Jan 2022
  • ICICI Securities

What is a Bond Ladder? & How to Use it to gain from Debt Funds?

Investing in bonds that mature on different dates makes a bond ladder. Read on to know how to make gains from debt funds using a bond ladder.

  • 12 Jan 2022
  • ICICI Securities

The shoe must go on! An overview of the Indian footwear industry

The Indian footwear market has seen many changes in customer behaviour towards footwear.

  • 12 Jan 2022
  • ICICI Securities

Is a 50:50 investment in Large-Cap & Mid-Cap Funds a good idea?

Large-Cap vs Mid-Cap asset allocation can be tricky, especially when the market is experiencing some headwinds. Developments and economic cues can either push the market indices higher or push them off a cliff.

  • 11 Jan 2022
  • ICICI Securities

Demerger in Motherson Sumi Systems Limited: Implications on your F&O positions

Motherson Sumi Systems Limited has fixed a Record Date of January 17, 2022 for the purpose of issuance and allotment of 1 equity share of Motherson Sumi Wiring India Limited for every 1 equity shares to shareholders of Motherson Sumi Systems Limited.

  • 11 Jan 2022
  • ICICI Securities

NSE to launch Futures and Options for Nifty Midcap Select Index from 24th January

F&O Trading has evolved in India with F&O volumes now contributing to more than 95% of overall NSE volumes. F&O volumes in NSE have nearly doubled in FY 22 compared to FY 21 same time.

  • 09 Jan 2022
  • ICICI Securities

Demerger in GMR Infrastructure : Implications on your F&O positions

GMR Infrastructure Limited has fixed a Record Date of January 12, 2022 for the purpose of issuance and allotment of 1 equity share of GMR Power and Urban Infra Limited for every 10 equity shares to shareholders of GMR Infrastructure Limited.

  • 06 Jan 2022
  • ICICI Securities

Best Stocks to Buy in 2022

The new year is here, which means it's time for new investments! If you're wondering which are the best stocks to buy in 2022 that will give you returns in the range of 20%-80%, we've got a list of 10 top stocks in different sectors that you should definitely consider for your portfolio.

  • 04 Jan 2022
  • ICICI Securities

What is smallcase? Know Investing Ideas via smallcases

In our efforts to offer you the most seamless investing experience, we’ve partnered with smallcase. What exactly are smallcases? They are baskets of stocks or ETFs based on relatable ideas. They are professionally managed by registered entities or individuals.