Tax Saving Mutual Funds5562503

Mutual funds are wonderful long term investment avenues for retail investors. To encourage investments in this avenue, Indian government provides tax benefits of Rs1,00,000 thus ensuring maximum benefit from mutual funds held beyond 3 years.

The benefits are Avail deductions under Sec 80C of the Income Tax Act by investing up to a maximum of Rs. 1 lakh in designated Equity Linked Savings Schemes (ELSS). Such investments have a compulsory lock in period of 3 years.

No tax is to be paid for selling ELSS held for over three year No tax is to be paid on dividends. The fund deducts a dividend distribution tax at source in case of non-equity schemes If you are looking for equity investments, ELSS is a better option as your investment gets a tax deduction (up to Rs 1 lakh) under Section 80 C. This includes all other investments like EPF,PPF and re-payment of the principal of a home loan, etc. If you dint invest in other schemes, make use of full 1 lakh rupees.

Tax-saving funds follow the same strategy as diversified equity funds. "In fact, since tax-saving funds are diversified, they outperform sector funds in a down cycle," says expets.

They say the 3-year lock-in works in favour of tax-saving funds, especially in the bear phase, as fund managers can take longer calls and deploy all the money as they don't have to fear premature redemptions.

ELSS schemes will be in existence till the Direct Tax code DTC is implemented. So investors must make use of this scheme when they are in Existence. These are wonderful schemes for Indian investors to get some tax savings.

If users don like to invest in tax free mutual funds or ELSS they can do by investing in PPF. These provide good tax saving opportunities for Indian investors. Some good performing schemes are Axis Muual Fund, HDFC Tax saver and Reliance tax saver.

Detailed info on best tax saving mutual funds can be found on the main website.