(Last Updated: October 11, 2018)
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Can Mutual Funds Help in getting 80c benefits ?

  • Mutual funds for 80c benefits also called ELSS or tax saving funds are one of the most prominent and lucrative investment options to save taxes as well as grow money. Primarily because the have lowest lock-in period amongst the 80c investment options and have historically delivered best returns

    Overview of 80C returns
    A lot of people start sweating and running away by the name of income tax. If you are also one amongst those who think that income tax acquires a huge chunk of your total income and no portion of your income is left untouched, then 80C is a Section that you would want to lend your ear to.

    Section 80C is one of the most commonly known section of income tax act. The investments like life and health insurance, mutual fund investment, provident fund, investment on pension schemes are covered under Section 80C. Basically an investment on any of this pre- stated instruments can fetch you up to Rs.1.5 lacs of tax exempted income. Furthermore, these exemptions are not limited to investments but are also extended to expenses like education fees and home loans.

    Deductions under 80C
    Life and health insurance, may it be for individual or family, the annual premium paid under this is eligible for tax exemption.

    Apart from that home loan payment, fixed deposits, provident funds, pension funds and educational expenses and much more are entitled to tax exemption with certain terms and conditions under Section 80C.

    Mutual funds for 80C benefit ( tax saving funds)
    Section 80C is an overloaded affair, offering ample amount of instruments. The investor has to keep one’s financial planning in mind before investing under 80C. Most of the high earning officials who are included in 30% brackets of income tax are turning their attention towards mutual funds to reduce their tax liability.

    There are certain mutual funds that come with a tax saving feature like ELSS. The investment in such mutual funds can avail tax benefits u/s 80C. Some of the most common ELSS are SBI magnum tax gain, Franklin India index tax fund etc.

    A lot of experts advice to check the tenure of the instrument that you are interested in. The open ended equity mutual funds can be beneficial for short- term financial goals since the lock-in period is 3 years only but for long term goals, 15-year PPF or the NPS would be a correct choice.

    Advantages of ELSS
    People have been depending on PPF for way too long now and must think of putting their first step into equity market through ELSS.

    Idyllic, one should spread over one’s investment in ELSS throughout 12 months, starting from the beginning of financial year. One of the best parts of ELSS is the flexibility that it provides.

    Firstly the minimum investment is as low as Rs.500 plus you can make your contribution on any trading day of the year. Also, there is no compulsion to make a contribution every year.

    Apart from the tax benefit, it also helps you to grow your money since it invests in equity related instruments; your money grows when the stock market grows.
    Also, most of the investor’s getting attracted to withdraw their money as soon as they make some good returns; ELSS MF’s forces them to keep their money for a period of three years, which helps you to grow your money.

  • ELSS mutual funds are tax saving mutual fund investments that provide you tax benefits and capital appreciation. As compared to other tax saving investments like a PPF or NSC that have a comparatively higher lock in period, the ELSS fund has a minimum lock in period of 3 years.
    On top of this ELSS funds invest in equity instruments that tend to provide good gains in the long run.

  • @vikas_nair Hi, I think the scenario has bit changed after introduction of tax on Capital Gain on equity @10% recently. Now, capital gain from equity in excess of Rs.1 lakh are subject to tax. So, ELSS is no longer a tax free instrument. Although, the contribution to ELSS still counts for deduction under section 80C. But, I think this LTCG tax shall have big impact on investor's mind, they will get reduced returns. What do you think?

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