A tax saving mutual fund, also called Equity Linked Savings Scheme (ELSS)!
Tax saving mutual funds are just like any other mutual funds with an added tax-saving benefit. The special feature of this type of mutual fund is that the investments made in the tax-saving mutual funds are eligible for tax benefits under section 80C of the Indian Income Tax Act. Most of the tax saving mutual funds are ELSS schemes and make investments in the growth-oriented equity market.
When an investor invests money in a mutual fund, the invested capital is added to the pool. The portfolio corpus of the fund is then invested in the equity market in such a balanced way that even if one investment incurs losses, the other investment manages to mitigate the loss. For example, the breakup of an investment in a particular fund may look like:
Automotive industry – 6.56%
Banks – 17.56%
Consumer durables – 5.34%
Consumer non-durables – 5.66%
Power – 5.92%
Software – 8.93%
Pharmaceuticals – 9.99%
Best Tax Saving Mutual Funds :
Save ₹46,800 in Taxes with Tax Saving Fund
Average returns around 15% in last 3 years, better than Fixed Deposit or PPF
Has a lock in period of 3 years only
Invest upto Rs 1,50,000 in these funds as per Section 80C
Retirement savings can grow in a tax-advantaged way for later disbursement in later life.
401(k) plans and IRAs allow tax-deferred growth in investments, which are then subject to income taxation upon withdrawal, and which come with penalties for early withdrawal.
Permanent life insurance policies can also be built to accumulate retirement savings. These funds are not at risk of loss in the market and can accumulate and disburse tax-free if designed Correctly