Tax-Saving Mutual Funds: Tips and Tricks for Maximizing Returns

If you are a salaried person, you should be aware that saving taxes is very important when you have the facility. As per Section 80C of the Income Tax Act, the investments made in ELSS funds are eligible for a tax deduction of up to Rs 1.5 lakhs. Basically, investing in the top tax saver mutual funds can help you save this much amount of money. 

Around three months ago, I was also planning to invest in the same. But, instead of going to any bank near you, you just need to pick up your smartphone these days with the right application installed in it. 

What are tax saver mutual funds?

Also known as Equity Linked Saving Schemes (ELSS), Tax-saving mutual funds are a category of mutual funds that offer tax benefits to investors under the Income Tax Act of India. 

These funds, towards which potential investors are obviously more inclined towards, offer an opportunity for individuals to invest in equity markets while enjoying tax deductions. 

What are its advantages?

  • Tax Benefits

Investments made in ELSS funds are eligible for a deduction of up to Rs 1,50,000 under the Income Tax Act’s Section 80C. This deduction reduces the taxable income of the investor, which ultimately leads to savings. 

  • Lock-in period

ELSS funds have a mandatory lock-in period of three years, which is, surprisingly, the shortest among all the tax-saving investment options under Section 80C. However, it is important to keep in mind that during this tenure, the investors cannot redeem the units. 

  • Equity Exposure

The top tax saver mutual funds primarily invest in equity as well as equity-related instruments. These offer the potential for capital appreciation over the long term.

  • Potential Returns

Since these mutual funds invest in equities, the returns generated here are market-linked and can vary over time. However, there is no doubt in the fact that equity investments have provided higher returns as compared to traditional tax-saving instruments. 

  • Diversity

ELLS funds invest in a diversified portfolio of stocks across various sectors and market capitalizations. This is to aim to spread risk and optimize returns. 

What are the tips and tricks for maximizing returns?

  1. Start early

The earlier you start investing in tax-saving mutual funds, the better it is for your portfolio. This is simply because the longer you stay invested, the higher your returns will be. 

  1. Monitoring

It’s essential to keep a keen eye on your investment and review them on a regular basis. This is because you may need to make changes to your portfolio based on changes in your investment goals or ongoing market conditions. 

  1. Consider Lock-in period

These funds have a lock-in period of three years, meaning you cannot redeem your investment before it. Therefore, it is important to consider your liquidity needs before investing in these funds. 

  1. Choosing the correct fund

When selecting the best mutual funds to invest in, it is essential to choose a fund that aligns with your investment objectives as well as your risk profile.

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