Tax Saver Mutual Funds: Where Should You Invest?

There are different types of funds and you can invest in anyone you like. But it is always good to be prudent in your choices. Make sure that you pick the right option because investment can be harmful to if not done properly. Certainly in an era where more and more people are inclining towards mutual funds, it might be difficult for you to resist and you must not resist too. But make sure whatever choice you make regarding funds is after proper thought.

Tax Saver Mutual Funds

For any type of investor, tax planning is a critical part of their financial planning. Section 80C of the Income Tax Act offers investors the alternative to claim deductions from the taxable income via investments in certain schemes. You know what equity Linked Savings Scheme is one such type of tax saving mutual funds option. Have you ever wondered about a fund like that of Best tax saver mutual fund?  You know what these funds are a lot better than all other tax saving options. If you want to know why then keep on reading.

What are these Best ELSS Mutual Funds?

ELSS, as the name says it all, are equity-based mutual funds. These funds are the only set of mutual funds that can assist you avail tax deductions. These mutual funds are available in with a lock-in period of three years. The investment route might be either lump sum investment or that of an SIP. The monthly investment can also be as low as Rs.500 and there is no restriction on the maximum limit.

Who should do investment in the ELSS Mutual Funds?

ELSS funds are mostly chosen by investors who are planning and willing to take risks as these investments are equity oriented. Since there is a danger of volatility, it is suggested that you invest for a longer period as compared to that of the lock-in period of three years. Folks nearing their retirement might opt for other tax savings investments that of PPF or NSC as these are less volatile. However, folks who have just began their career and can invest for a long duration of time can opt for the more dangerous ELSS funds that would give higher returns that of compared to others. Certainly you can figure out in which category you are in. if you can do investment for a longer period then you might find these funds effective and apt for you.

What are the common advantages of ELSS Mutual Funds?

There are many advantages of ELSS mutual funds like:

Better potential for Wealth formation

All other types of tax saving options other than ELSS (barring the NPS) cater you with fixed income type returns that are hardly high enough to overcome the effects of inflation. Resultantly, you end up locking in the money you have invested for anything from 5 years (for a tax saving FD) to that of 20 years (for many traditional life insurance plans) for a poor degree of return. ELSS Funds, on the other hand, reap the power of the equity markets, thereby providing better returns over the long run. As a category, ELSS Mutual Funds have produced annualised returns of over 18% over the past five years.

Being an equity investment, ELSS funds are going to deliver good returns in the long run. Investing discipline is the main tool to making good returns, and the three-year lock-in period takes care of such a thing. In the long-run, the investor is going to benefit from the power of compounding that will give him/her perceptibly higher yields in the later years. 

Shorter Lock in period

ELSS Mutual Funds have a comparatively short lock in period of just 3 years, compared to other types of Section 80 C tax saving instruments that lock in your funds right from anything from five to twenty years. However, investors are advised to stay invested for anything from five to seven years in an ELSS, since equity markets can be volatile in that of the short run.

Potential for Earning Extras

Investors in ELSS Mutual Funds who prefer and choose the dividend pay-out option can possibly earn tax free dividends even before their maturity dates. Although dividends are subject to that of booked profits, and not certain, most top performing ELSS Mutual Funds have a track records of stating dividends anything from 1 to 2 times a year. The significant of the dividends would be dependent on the performance of the funds.

The Mutual Fund SIP Option

ELSS Mutual Funds cater investors the option of placing their tax savings on auto-pilot, through the SIP (Systematic Investment Plan) route. By calculating their Section 80 C shortfalls early on in the fiscal, and beginning a monthly SIP to cover this gap, investors can attain their tax saving targets without suffering the typical financial yearend stress of scrounging up funds to save their taxes! SIP’s also helping average the buying price of your ELSS Mutual Fund units, thus limiting your downside in the event that markets head south.

Tax-efficient investments

ELSS funds are amidst the most tax-efficient investments. The amount invested in any of the ELSS funds can be claimed as a deduction u/S 80C to of upper limit of Rs1.5 lakh. These are perhaps the only mutual funds that permit the investors to save tax while providing higher returns via equity in the long-run. 

Lower tax applicable

You know what ELSS funds have a lock-in time duration of at least three years. Therefore, returns from an ELSS investment are going to be treated as LTCG (long-term capital gains). However, dissimilar to STCG (short-term capital gains), which are taxed at fifteen percent LTCG above Rs1 lakh is charged at ten percent. Therefore, ELSS funds automatically fascinate the lower tax. 


To sum it up, ELSS funds are a great, tax-saving choice for investors who wish to earn higher returns through equity exposure. If you want the best tax saving mutual funds then you must go for these types of funds. They would get you a great return and experience.

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Article Author Details

Wayne Geffen