The prime consideration of any investor to get attractive returns has generally been through Mutual funds. By the expertise of Investment bankers and managers, mutual funds are invested in various financial instruments. By collecting funds from various investors, the amount is invested in a balanced portfolio consisting of various securities and equity instruments.
According to the Income tax rule most of the time mutual fund returns are taxed. The investor ponders on the fact that even after considering the risk involved in mutual fund investment, when they invest; the returns after deducting the taxes are as much as any fixed deposit schemes. So is there any possibility to get exemption from tax with mutual fund investment? The Answer is Yes.
Section 80C Equity Linked Savings Scheme (ELSS)
According to the Income Tax Act, Section 80C Equity Linked Savings Scheme (ELSS) are the funds where the major chunk of investment is in the Equity Market. When an investor opts for tax saving mutual funds his money is invested in a portfolio pool; the investment manager then invests the funds in various equity related instruments where even if one company does not return well, the other will.
The ELSS mutual funds invested should be at least 80% in the Equity market. ELSS funds have a lock-in period of 3 years. When an amount is invested in a lump-sum, it can only be withdrawn after the maturity period of 3 years. When the funds are invested on a monthly (SIP) basis, the lock-in period will be of each instalment, the investor can only withdraw the instalment which has completed 3 years.
How do you get tax benefits through ELSS Mutual funds?
According to the Income Tax Act, Section 80C the tax deduction benefit will be up to 1.5 lakh on returns. Also, under this scheme the investment redemption will be treated as long term capital gains and thus there will be no deduction on gains up to 1 lakh. Above 1 lakh, the gains will be subjected to a 10% deduction.
Most investors prefer SIP as they can invest bit by bit monthly along with gaining tax benefits. Investors are allowed to invest with the minimum amount of Rs.500. There is no limit to the maximum amount or period of investment. Once the lock-in period of 3 years is over, the investor can choose to continue with their investment for as long as they want.