With the dual advantage of tax-saving & potential for better returns than traditional tax-saving investment products, tax-saving mutual funds are a must-have for every investor.
In this blog, we will discuss the best mutual funds to save taxes
What are tax-saving mutual funds?
Mutual funds with a tax-saving component are identical to other mutual funds in every way. Because investments made in tax-saving mutual funds are eligible for tax benefits under section 80C of the Indian Income Tax Act, this form of mutual fund has a unique characteristic.
Most tax-saving mutual funds participate in the growth-oriented stock market and are ELSS programs.
The benefits of tax-saving mutual funds
that save taxes provide investors with a variety of advantages. The following are a few of the crucial ones:
- Tax advantages of up to Rs. 1.5 lakh may be available for investments made in these kinds of funds.
- Under these plans, long-term capital gains are not taxed.
- Investments in these plans can be made as a way to set aside money for future expenses like car or home down payments.
- Through these programs, investors can make monthly investments through SIPs, eliminating the need for lump-sum investments.
- In order to reduce the danger of significant losses, the assets in the portfolios are not all invested in one location.
- If you decide against withdrawing your investment, it will keep growing and turn into a respectable sum of savings for an emergency.
- You may not be able to withdraw the original amount, but even during the lock-in period, you can withdraw the dividends that were received.
- These mutual funds have a lock-in term of just three years, as opposed to the six to fifteen years offered by other investing alternatives.
- Investments may be made at any time of the year because these schemes are open-ended in nature.
- Professional fund managers with extensive market understanding professionally oversee the funds. As a result, individuals who are unfamiliar with the market can also participate in these funds.
Best mutual funds to save taxes 2022
The following are the best mutual funds to save taxes in 2022:
| Funds | 1-Year Returns (%) | 3-Year Returns | 5-Year Returns |
| IDFC Tax Advantage (ELSS) Fund-Growth | 23.1 | 11.7 | 22.3 |
| Tata India Tax Savings Fund Growth | 14.6 | 12.3 | |
| L&T Tax Advantage Fund Growth | 16.2 | 13 | 20.3 |
| Aditya Birla Sun Life Tax Relief 96 Fund Growth | 19.3 | 12.1 | 23.5 |
| Aditya Birla Sun Life Tax Plan-Growth | 18.9 | 11.6 | 22.6 |
| DSP BlackRock Tax Saver Fund Growth | 9 | 11.4 | 21 |
| Axis Long-Term Equity Fund Growth | 18.1 | 9.3 | 24 |
| Kotak Tax Saver Fund Growth | -4.79 | 10.25 | 17.66 |
| Invesco India Tax Plan Fund Growth | 0.6 | 11.1 | 19.0 |
| HDFC TaxSaver Fund | -11.1 | 8.5 | 15.0 |
Who should invest in the best ELSS mutual funds?
Any person or HUF that wants to reduce their annual tax liability by up to Rs 46,800 should think about investing in ELSS.
The only people who should invest in ELSS are those who are ready to take some risk and can commit to holding their investment for at least the three-year lock-in period.
To benefit from the greatest returns given by mutual funds, investors are urged to hold their investments for at least five years.
It is appropriate to provide five years. You’ll give your assets the necessary time to experience market cycles and generate great profits over the long term.
Young investors who are just beginning their careers in finance can invest for the long term. Young investors are the greatest candidates for ELSS since they have the time to maximize the power of compounding, enjoy excellent returns, and save up to Rs 46,800 in annual taxes.
FAQ
Do tax-saving mutual funds outperform other tax-saving options like PPF and others in terms of returns?
As of March 1, 2022, the category returns for ELSS are, respectively, 18.96%, 18.76%, and 14.38% for the 1-year, 3-year, and 5-year time periods.
While Sukanya Samriddhi Yojana’s current yield is 7.6%, the current return on PPFs, a popular fixed-income tax-saving device, is 7.1%.
Financial analysts estimate that a ULIP plan produces an average return of 10–12% over a ten-year investment term.
What are the hazards connected to different tax-saving tools?
Since they are linked to investments in equity-related products, ELSS & ULIP investments are often high-risk. However, there are still some risks associated with fixed-income instruments.
The government frequently assesses the interest rate on these programs (usually every quarter), and it is impossible to ignore the effects of interest-rate variations on them.
Does ELSS have a minimum investment requirement?
Undoubtedly, ELSS has a minimum investment requirement. Although the mutual fund provider determines the minimum investment amount, it is often approximately Rs. 5,000.
