Mutual Funds are investment vehicles that allow investors to pool their money with the hope of earning favourable returns over a period. There are different types to choose from. However, if you are investing in Mutual Funds for the first time, Debt Funds or Equity-Linked Savings Schemes or an ELSS Fund might be a good choice. You could opt for the latter for the following reasons:
They offer diversification
An ELSS Fund invests in stocks of listed companies across various sectors, themes, and sizes. Hence, they offer the opportunity of taking advantage of a diverse portfolio. Moreover, fund managers usually keep changing the portfolio’s composition according to the market conditions. This allows these funds to benefit from emerging opportunities and improves their potential to generate higher returns.
A diverse portfolio also enables these funds to handle risks better since the investments are spread out. This makes them a good investment option for first-timers.
Saves up to Rs. 46,800 in taxes
ELSS Mutual Funds are the only Mutual Funds that are tax-saving in nature. As a result, they allow you to claim deductions of up to Rs. 1.5 lakh annually when you invest the money in them. This exemption is claimable under Section 80C of the Tax Act, 1961. They also help you save up to Rs. 46,800 as taxes yearly.
Besides this, such investments also have the shortest lock-in period than other tax-saving instruments under Section 80C. Therefore, they are more liquid than the other tax-saver options.
Invest in future and save on taxes
These funds prevent you from facing the issue of choosing between long-term investments and reducing your tax burden. Since this Mutual Fund Investment invests in Equity, it might also offer more reasonable returns in the long run than other tax-saving options. For example, investments in the Public Provident Fund and National Savings Certificate allow you to save similarly in taxes. However, their returns can barely beat inflation.
The income from this Mutual Fund is classified as Long-Term Capital Gains. Hence, gains of up to Rs. 1 lakh annually are exempted from taxes. Any income beyond that is taxed at 10%.
Invest monthly
You can start your investment journey by making either Lumpsum Investments or Systematic Investment Plans in this Tax-Saver Fund. However, if you do not have a large corpus or prefer to start small, you can opt for SIPs. This lets you invest a fixed sum regularly and gives you more flexibility. It also enables you to start investing early and might develop a saving habit.
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