Tax Saving Mutual Funds 2021: A Comprehensive Guide
Saving on taxes is a crucial aspect of financial planning. Investing in tax-saving mutual funds is an effective way to reduce your tax liability while also growing your wealth. Tax-saving mutual funds, also known as Equity Linked Saving Schemes (ELSS), are mutual fund schemes that offer tax benefits under Section 80C of the Income Tax Act. In this blog, we will discuss the best tax-saving mutual funds for the year 2021.
What are Tax Saving Mutual Funds?
Tax-saving mutual funds are mutual fund schemes that invest predominantly in equity or equity-related instruments and come with a lock-in period of three years. These funds offer tax benefits under Section 80C of the Income Tax Act, which allows you to claim a deduction of up to Rs. 1.5 lakh from your taxable income.
Why Invest in Tax Saving Mutual Funds?
Investing in tax-saving mutual funds has several benefits:
- Tax Benefits: You can claim a deduction of up to Rs. 1.5 lakh from your taxable income.
- High Returns: Tax-saving mutual funds invest in equity, which has the potential to generate high returns over the long term.
- Diversification: Tax-saving mutual funds invest in a diversified portfolio of stocks, which helps reduce the risk of losses.
Best Tax Saving Mutual Funds for 2021
- Axis Long Term Equity Fund: This fund has consistently delivered high returns over the past few years and has a track record of outperforming its benchmark. The fund has a large-cap bias and invests in companies with strong fundamentals.
- Mirae Asset Tax Saver Fund: This fund has a diversified portfolio of stocks across market capitalizations and has delivered consistent returns over the past few years. The fund has a bias towards large-cap stocks and invests in companies with strong growth prospects.
- Aditya Birla Sun Life Tax Relief 96 Fund: This fund has a large-cap bias and invests in companies with strong fundamentals. The fund has a consistent track record of delivering high returns over the long term.
- HDFC Tax Saver Fund: This fund has a diversified portfolio of stocks across market capitalizations and has consistently delivered high returns over the past few years. The fund has a bias towards large-cap stocks and invests in companies with strong growth prospects.
- SBI Magnum Tax Gain Fund: This fund has a large-cap bias and invests in companies with strong fundamentals. The fund has a consistent track record of delivering high returns over the long term.
Tax-saving mutual funds are a popular investment choice among individuals who are looking to save taxes and earn high returns. These mutual funds come with a lock-in period of three years, which means you cannot redeem your investment before the completion of the lock-in period. This helps in building discipline and ensuring that investors stay invested for the long term.
One of the advantages of tax-saving mutual funds is that they invest predominantly in equity, which has the potential to generate high returns over the long term. This makes them an attractive investment option for individuals who are looking to create wealth over a long period of time.
Another advantage of tax-saving mutual funds is that they offer tax benefits under Section 80C of the Income Tax Act. This means that you can claim a deduction of up to Rs. 1.5 lakh from your taxable income by investing in these mutual funds. This can help reduce your tax liability and increase your take-home pay.
When choosing a tax-saving mutual fund, it is important to consider factors such as the fund’s investment objective, past performance, investment philosophy, and the fund manager’s track record. You should also consider your investment goals, risk appetite, and investment horizon before investing in a mutual fund.
Conclusion
In conclusion, tax-saving mutual funds are an effective way to reduce your tax liability while also building wealth over the long term. It is important to choose the right mutual fund based on your investment goals and risk appetite. By investing in tax-saving mutual funds, you can achieve your financial goals while also saving taxes.
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Frequently Asked Questions (FAQs)
What is a tax-saving mutual fund?
A tax-saving mutual fund is a type of mutual fund that invests predominantly in equity and comes with a lock-in period of three years. These funds offer tax benefits under Section 80C of the Income Tax Act.
What is the lock-in period for tax-saving mutual funds?
The lock-in period for tax-saving mutual funds is three years.
What is the maximum deduction that can be claimed under Section 80C?
The maximum deduction that can be claimed under Section 80C is Rs. 1.5 lakh.
Can I redeem my investment in a tax-saving mutual fund before the completion of the lock-in period?
No, you cannot redeem your investment in a tax-saving mutual fund before the completion of the lock-in period.
What is the minimum investment amount for tax-saving mutual funds?
The minimum investment amount for tax-saving mutual funds varies from fund to fund. It can range from as low as Rs. 500 to as high as Rs. 5,000.
What are the tax implications of investing in tax-saving mutual funds?
Investing in tax-saving mutual funds offers tax benefits under Section 80C of the Income Tax Act. However, any capital gains earned on the investment are taxable as per the investor’s income tax slab.
Are tax-saving mutual funds risky?
Tax-saving mutual funds invest predominantly in equity, which is a risky asset class. However, these funds also offer the potential to generate high returns over the long term.
Can NRIs invest in tax-saving mutual funds?
Yes, NRIs can invest in tax-saving mutual funds. However, they need to comply with certain regulations and procedures.
Can I switch from one tax-saving mutual fund to another?
Yes, you can switch from one tax-saving mutual fund to another. However, any capital gains earned on the investment are taxable as per the investor’s income tax slab.
Can I invest in more than one tax-saving mutual fund?
Yes, you can invest in more than one tax-saving mutual fund. However, it is important to diversify your investments and choose funds that align with your investment goals and risk appetite.
