Tax Saving Mutual Fund
Regarding saving tax, you must have heard of tax saving mutual funds or ELSS. But accurate information about this tax-saving option is difficult to get. Firstly, people have to understand the best mutual fund and after this, the fund of the tax saving mutual fund. This tax saving job is really a mess …
Let us try today that you understand the tax saving mutual fund well so that you can also take advantage of it. Do you know, there is a chance to earn the most in this way of saving taxes! And the conditions are also the lowest in this manner!
Tax savings mutual fund ELSS Tax saving the mutual fund
What is a tax-saving mutual fund? What is the Tax Saving Mutual Fund
Well, by its name it is known that it is a kind of mutual fund. But it is also a different name and because of that the confusion also spreads. Then its second name is the Equity Linked Saving Scheme (ELSS). Now instead of trying to understand its meaning and solve the problem, just know that the Income Tax Department understands the name of ELSS. Therefore, whenever the mention of Top 3 ELSS Mutual Funds is considered as a tax-saving mutual fund.
Equity Linked Savings Scheme or Tax Saving Mutual Fund is an option where tax deductions can be saved by investing money in Mutual Funds. And this way of tax saving can also be the best earning.
Tax-saving MF is a kind of category. And different companies are running mutual fund schemes in this category. You can save taxes by investing in this scheme of your choice. Well do you know that there are more than a dozen mutual fund companies in India?
Do you know about other ways to save tax? Do you know that EPF, PPF, life insurance and NSC etc are also tax saving schemes?
This is equity mutual fund. Equity Mutual Fund Scheme
A mutual fund is a scheme wherein many people are invested by collecting money. These investments can be in government bonds, fixed deposits of companies, stocks or gold. Every mutual fund scheme has a fund manager. This person decides where to fund the fund and when to withdraw it.
When a mutual fund scheme is invested in most stocks, it is considered as Equity Mutual Fund. In fact, equities mean shares. So hundreds of such equity mutual fund schemes are working and people put their own money in it.
Tax Saving Mutual Funds are also similar equity mutual fund schemes. That is, these schemes also invest in stocks. Yes, you get the benefit of tax deduction because of investing in shares.
These mutual funds mostly buy stocks of large companies. Although there is no restriction on these, large companies have less scope for loss.
Risk of stock market fluctuation. Risk of Share Market
Many people’s ears stand up listening to the name of the stock. Except for Gujarat, Kolkata, and Mumbai, in most places, people consider the stock market to be like the speculative market. But that’s not the case. Most investors and pensioners around the world use their money only in shares.
It is true that the movement of the stock market is strained. It sometimes touches the sky and then sometimes dives in the ocean. There will also be people who have lost everything in the stock market. In many cases, the capital of the people only survives. But it happens only when people jump in this ocean without learning swimming.
You will now say that ‘I can not learn the art of swimming in the stock market’. Actually it does not even need it. The manager of the mutual fund will take your money and float in this ocean and make money. This is the concept of a mutual fund.
But it is true that when there is a storm in the stock market, everyone is at a loss. But later the weather gets better and once again people make a lot of money from it.
A possibility of earning better. Better Return
Now you must understand that the country has made all the rich people money by putting industry. Indeed, the industry is the fastest way to grow today. And this stock market gives you the opportunity to invest money in similar industries. Perhaps you do not know that since 1980, the stock market has returned an average of 15% annually.
Since your tax saving mutual fund also invests in stocks, there is a possibility of making the most money from this. In the past 15 years, these funds have given an average return of 21% annually. Now that’s not enough to earn so much. Gold or Property has lost all these shares in front of the returns in the long run.
That is why if you want to have the highest earnings from your tax saving investment, then invest in tax-saving mutual funds (ie ELSS).
You can invest every month through SIP. SIP Facility
Tax Saving Fund or any other mutual fund, they all facilitate SIP. There is a way to invest in a SIP mutual fund. In this way, you invest a fixed amount in a mutual fund on a fixed interval. Normally this fixed interval is of one month.
When you put a fixed amount on any one of the months in any one mutual fund scheme, it will be considered as SIP. The full form of SIP is Systematic Investment Plan. Knowing its full form will make things clear. Nowadays, when you choose the method of SIP, money is automatically cut off every month from your account. This facilitates both you and the mutual fund company.
There is an advantage over investing in SIP mode. Every month you get a mutual fund unit at different prices. Sometimes the price is high, so never underestimate. In such a scenario, overall, you are able to get units of mutual fund in an average price. That is, you do not have to worry about the ups and downs of the market.
In fact, the SIP is like a recurring deposit of the bank, the number of yarns being bought in it is less. To understand more about SIP, you can read our second article.
Tax saving on investment under Section 80C 80C Tax Saving
Tax saving is the biggest savings of tax in mutual funds, due to Section 80C. In this section of the Income Tax Act, there is a mention of those investments and expenses, in which money can be saved by putting money. According to the rule, the amount of money you will invest in these schemes will be deducted from your taxable income. Now taxable income will decrease, tax will automatically be saved. Under section 80C, you can deduct up to Rs 1.50 lakhs from the taxable income.
Do you know taxation income of Rs. 46 thousand rupees is reduced when the taxable income is cut by 1.5 lakhs!
So, as we mentioned, there is a limit to getting tax exemption from Section 80C. And therefore, tax exemption can also be found only through the ELSS. Well, there is no maximum limit to investing in this fund.
No tax on withdrawal of money. Tax-Free Income
Taxation under section 80C provides an opportunity to reduce tax. But tax-saving mutual funds give you a chance to save tax besides this.
Typically, by investing anywhere, when you increase the money, the increased amount is earned as tax and tax is imposed on it. But this does not happen in the case of Tax Saving Mutual Fund. Whatever your money by investing in it, enjoy the amount of maturity, be pleasantly surprised, no one will come to ask.
In fact, if investing in shares for more than a year, there is no capital gains tax on profit. If you had invested in Fixed Deposit or NSC then there would be tax on interest.
Can not withdraw money for three years. 3-year Lock-in
So far I have told the benefits of your tax saving mutual fund. Let’s now tell that there are thorns with flowers. Actually, the government has given these funds with a condition of tax deduction benefit. And that condition is lock for money for three years. If you have invested money in this fund then forget for three years. Then you can not withdraw this money at any cost before three years.
what? Do you see this condition of lock-in for three years? Dear, this is the smallest lock-in in all Tax Saving Options. Insurance, NSC, tax saving FD, PPF, EPF lock-in is five years or more.
Note: When you invest in ELSS through SIP, then every monthly installment is considered as a separate investment. And for this reason, three years lock on each installment seems different.
Select Direct Plan to Avoid Distributor Commissions. Choose Direct Plan
Each mutual fund scheme has two plans: Regular plan and Direct Plan. Direct plans have started since 2013 after the SEBI directive. Direct plan of the mutual fund scheme is not sold through the distributor. You can buy these plans only from the mutual fund company’s website or office.
Since the distributor does not include these plans, the distributor’s commission also escapes. And that’s why you earn more than a direct plan. Do you know, the NAV of the Direct Plan is also different?
However, the rest of the plan is the same as the Regular Plan. In fact, money goes to the same plan but the NAV is deducted from the deduction in the regular plan, whereas the NAV in the direct plan is deducted without commission.
Therefore, if possible, then you also choose the direct plan for the mutual fund scheme. Nowadays, mutual fund companies can easily purchase Mutual Fund units from the website. KYC also goes online. Some mutual fund aggregators, however, offer direct plans but mostly take a fixed fee.