Why Should I Choose the Best Tax Saving Mutual Funds for Investment?
Almost everyone has tied up their seat-belt tightly to travel through the upcoming phase of the taxpaying month. Haven’t you? It may be your biggest mistake as it’s no use to realise it later that you have missed an amazing opportunity. Generally, there are many tax saving instruments available in the market which can allow you to avail tax benefits from the Income Tax Act, 1961. But, there is no comparison of the other instruments with the Equity Linked Savings Scheme (ELSS) as it is superior to them in many ways.
Today, we will let you know that why you are required to choose the best tax saving mutual funds for investments. But before that, let’s take a glance at the superiority of ELSS over the other tax saving instruments:
- Shortest Lock-In Period: In comparison with the other tax saving instruments which are available in the market, the ELSS has the least lock-in period. It means that you can redeem your investments at any point in time after the completion of three years. But, if you choose to invest in the other options such as FDs, NSC, PPF, etc., your capital will get locked-in for a minimum period of 5, 10, and 15 years respectively. So, which option will you choose, ELSS or the others?
- Yields High Returns on Investments: Investments in ELSS funds help you earn higher returns as they do not have any fixed rate of interest like in FDs. Rather they depend on the market fluctuations which decide the averaged rate over a period of time. If you see the historical returns of the tax savings options, FD has the records of 8-8.50%, NSC has 8.5%, PPF has 8.1%, whereas the ELSS has the record of providing the returns of up to 14-16%.
- Tax Benefits: ELSS is entitled to provide the tax deduction of up to Rs. 1.5 lakh under section 80C of the Income Tax Act of India, 1961. It means that one can save around Rs. 46,350 from tax in each financial year. ELSS is especially known for the tax benefits it provides to the investors. There is no tax imposed on the maturity amount accrued through ELSS investments. You too must choose to invest in these funds, in case you require superior tax benefits.
- Equity Advantages: The most appreciated benefit of this category of funds is that you can reap excellent returns as in equity fund investments. The other tax saving instruments do not provide this benefit to the investors hence offering a lower rate of return. As ELSS invests the capital in the stocks and shares of various companies, it gives a higher rate of returns to the investors while providing the tax reduction.
From the points mentioned above, you must have got an idea that how beneficial it is to invest in best ELSS funds. Let’s now understand why the experts suggest to choose the best one:
When you invest in the other tax saving instruments, you need not worry about the choice as they have a fixed format of how they will reap benefits for you. But when you invest in ELSS, you just need to pay a little attention while choosing a suitable scheme. It is because they are the type of equity mutual funds which are known for their aggressive moves in the market to attain high growth in the long-term investment tenure. As in equity funds, you need to make a perfect selection before deploying your hard-earned money to assure the rewarding nature of the fund, similarly in ELSS, you are required to do the same. You can take the help of the fund advisors, a perfect selection is a must in case you wish to create wealth. If you are willing to choose the one on your own, then you must consider the following factors to check the ability of the fund in generating good returns in the long-term tenure:
- Performance: You need to check the past performance of the scheme so that you can recognize how rewarding the scheme was in the different market phases. You can also have a check on the trailing returns of the different time-cycles to know the rewarding nature of the scheme. Moreover, there are various other factors which help to determine the past ability of the fund in generating higher returns, which include SD, beta, alpha, etc.
- Portfolio Holdings: Many people make a check on the top holdings of the fund before choosing it for investment. It is because there are a lot of holdings of funds, and as a ground level investor, it is difficult to check and analyse them as a whole. So, it can be a good decision to have a brief analysis of the top holdings of the fund for example, having a check on the top 10 holdings.
There were some other parameters which are helpful in choosing the suitable scheme to invest in. The two factors mentioned above give an idea about the capability of the fund to a good extent. When you select the best ELSS fund to invest in, you may get more opportunities to earn higher returns. Therefore, make an appropriate choice and invest in the best tax saving fund.
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