Tax Saving Mutual Funds 2022: A Guide to Invest Smartly and Save Tax
As the financial year 2021-22 is coming to an end, it’s time for individuals to plan their tax-saving investments to reduce their tax liability. One of the best ways to save tax is by investing in tax-saving mutual funds. In this blog, we’ll discuss tax-saving mutual funds 2022 and guide you on how to invest in them.
What are Tax-Saving Mutual Funds?
Tax-saving mutual funds, also known as Equity-Linked Saving Schemes (ELSS), are mutual fund schemes that invest primarily in equities and offer tax benefits under Section 80C of the Income Tax Act. Investors can claim a deduction of up to Rs. 1.5 lakh by investing in tax-saving mutual funds. These funds come with a lock-in period of three years, which means investors can’t withdraw their money before the completion of the lock-in period.
Why Invest in Tax-Saving Mutual Funds?
Investing in tax-saving mutual funds has several advantages. Firstly, it helps individuals save tax and reduces their tax liability. Secondly, these funds have the potential to generate higher returns than other tax-saving instruments like fixed deposits, Public Provident Fund (PPF), and National Savings Certificate (NSC). Thirdly, since these funds have a lock-in period of three years, investors can benefit from the power of compounding, which can help them generate higher returns in the long run.
How to Invest in Tax-Saving Mutual Funds?
Investing in tax-saving mutual funds is a simple and straightforward process. Here’s how you can invest in them:
- Choose a Fund: The first step is to choose a tax-saving mutual fund that suits your investment goals and risk profile. You can check the past performance of the fund, the fund manager’s track record, and the fund’s expense ratio before making a decision.
- Open a Mutual Fund Account: You can either open a mutual fund account with a fund house or invest through a third-party platform like a stockbroker or a mutual fund distributor.
- KYC Compliance: To invest in mutual funds, you need to be KYC compliant. You can complete your KYC formalities by submitting your PAN card, Aadhaar card, and other relevant documents.
- Invest Online: Once your KYC formalities are complete, you can invest in tax-saving mutual funds online. You can either invest a lump sum amount or start a Systematic Investment Plan (SIP) to invest regularly.
Best Tax-Saving Mutual Funds to Invest in 2022
Here are some of the best tax-saving mutual funds to invest in 2022:
- Axis Long Term Equity Fund
- Mirae Asset Tax Saver Fund
- Aditya Birla Sun Life Tax Relief 96
- Canara Robeco Equity Tax Saver
- DSP Tax Saver Fund
Benefits of Investing in Tax-Saving Mutual Funds
Investing in tax-saving mutual funds has several benefits, which makes it an attractive investment option for individuals looking to save tax and generate higher returns. Here are some benefits of investing in tax-saving mutual funds:
- Tax Benefits: Tax-saving mutual funds offer tax benefits under Section 80C of the Income Tax Act. Investors can claim a deduction of up to Rs. 1.5 lakh by investing in these funds.
- Potential for Higher Returns: Tax-saving mutual funds primarily invest in equities, which have the potential to generate higher returns than other tax-saving instruments like fixed deposits, PPF, and NSC. Investors can benefit from the power of compounding and generate higher returns in the long run.
- Professional Management: Tax-saving mutual funds are managed by professional fund managers who have the expertise and knowledge to manage the fund’s portfolio. Investors can benefit from their expertise and experience.
- Diversification: Tax-saving mutual funds invest in a diversified portfolio of stocks, which helps in reducing the risk associated with investing in a single stock.
- Liquidity: Tax-saving mutual funds have a lock-in period of three years, but investors can redeem their units after the completion of the lock-in period. This provides liquidity to investors in case of any financial emergency.
Best Tax-Saving Mutual Funds to Invest in 2022
- Axis Long Term Equity Fund: This fund has a track record of consistently delivering high returns over the years. The fund primarily invests in large-cap stocks and has a diversified portfolio. The fund has generated an average return of 19.12% over the past five years.
- Mirae Asset Tax Saver Fund: This fund has been a top-performing tax-saving mutual fund in recent years. The fund primarily invests in large-cap and mid-cap stocks and has a diversified portfolio. The fund has generated an average return of 20.92% over the past five years.
- Aditya Birla Sun Life Tax Relief 96: This fund has a track record of consistently delivering high returns over the years. The fund primarily invests in large-cap and mid-cap stocks and has a diversified portfolio. The fund has generated an average return of 16.84% over the past five years.
- Canara Robeco Equity Tax Saver: This fund has a track record of consistently delivering high returns over the years. The fund primarily invests in large-cap and mid-cap stocks and has a diversified portfolio. The fund has generated an average return of 19.16% over the past five years.
- DSP Tax Saver Fund: This fund has a track record of consistently delivering high returns over the years. The fund primarily invests in large-cap and mid-cap stocks and has a diversified portfolio. The fund has generated an average return of 19.46% over the past five years.
Conclusion
Investing in tax-saving mutual funds is an excellent way to save tax and generate higher returns. It’s essential to choose the right fund that suits your investment goals and risk profile. Before investing, make sure to check the past performance of the fund, the fund manager’s track record, and the fund’s expense ratio. Invest wisely and save tax smartly!
Read more useful content:
- How to invest in mutual funds
- Best Technology Mutual Funds
- All about mutual funds-types & importance
- The Power of SIP Investment in Mutual Funds
Frequently Asked Questions (FAQs)
What are tax-saving mutual funds?
Tax-saving mutual funds, also known as Equity Linked Savings Schemes (ELSS), are mutual fund schemes that invest primarily in equity and equity-related instruments. They offer tax benefits to investors under Section 80C of the Income Tax Act, up to a maximum of Rs. 1.5 lakh.
What is the lock-in period for tax-saving mutual funds?
The lock-in period for tax-saving mutual funds is three years. Investors cannot redeem their investment before the completion of the lock-in period.
Are tax-saving mutual funds risky?
Tax-saving mutual funds invest in equity and equity-related instruments, which can be risky. However, investing in a diversified portfolio of stocks can help reduce the risk associated with investing in a single stock.
Can I switch my investments in tax-saving mutual funds?
Yes, you can switch your investments in tax-saving mutual funds. However, switching your investments before the completion of the lock-in period will result in the loss of tax benefits.
Can I invest more than Rs. 1.5 lakh in tax-saving mutual funds?
You can invest more than Rs. 1.5 lakh in tax-saving mutual funds, but you can only claim a tax deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act.
What is the minimum investment amount in tax-saving mutual funds?
The minimum investment amount in tax-saving mutual funds varies from fund to fund. It can be as low as Rs. 500 in some funds.
Can I invest in tax-saving mutual funds online?
Yes, you can invest in tax-saving mutual funds online through the websites of mutual fund companies or online investment platforms.
Are tax-saving mutual funds better than other tax-saving instruments like PPF and NSC?
Tax-saving mutual funds offer the potential for higher returns than other tax-saving instruments like PPF and NSC, but they also involve higher risk.
How are the returns from tax-saving mutual funds taxed?
The returns from tax-saving mutual funds are taxed as long-term capital gains (LTCG) at a rate of 10% on gains above Rs. 1 lakh. However, investments held for more than three years are considered long-term and are eligible for indexation benefits.
Can NRIs invest in tax-saving mutual funds?
Yes, NRIs can invest in tax-saving mutual funds subject to certain conditions. The tax implications will vary based on their residential status and other factors. It’s advisable to consult a tax expert before investing.
