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What are tax saving mutual funds?

By Finserv MARKETS - Aug 28,2019
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What are tax saving mutual funds

A mutual fund is an investment tool that pools money or funds from a group of people or investors with a mutual aim to earn a good return on their investments. Mutual funds are managed by asset management companies (AMCs) that hires fund managers to invest the money in various stocks, bonds and securities to earn good returns. Mutual funds investment is among the most popular forms of investments in India as it offers good returns with marginal risks. Securities and Exchange Board of India (SEBI) regulates the mutual funds in India.

If you are a first-time investor, then the number types, categories and subcategories of mutual funds can be confusing. You must know that mutual funds are classified according to different criteria like structure, asset class, investment objective, speciality and risk. Broadly, based on asset classes, there are four types of mutual funds: debt funds, equity funds, money market funds and hybrid funds.

Investment in mutuals funds involves lesser risks vis-a-vis investing directly in debt or equity as mutual funds spread their investments across diverse investments. Besides being less prone to market volatility, mutual funds also provides tax benefits to investors. You must, however, note that only one type of mutual fund scheme, known as the Equity Linked Saving Schemes (ELSSs) provides tax benefits.

On Finserv MARKETS, you can choose a mutual fund that suits your goal, be it wealth creation, requirement of retirement corpus or any other financial need.

What is an Equity Linked Saving Scheme?

An ELSS is a type of equity fund and the only mutual fund where you can claim tax deductions of up to Rs 1.5 lakh under Section 80C of the Income Tax Act. This deduction is applicable to both lump sum investments as well as systematic investment plans (SIPs).

Why is an ELSS the best tax saving mutual fund?

An Equity Linked Saving Scheme has several features, which makes it the best choice vis-a-vis other tax saving investment options. You can easily invest in an ELSS on Finserv MARKETS, which has a low transaction cost along with added benefits like diversified portfolio and reduced risks. Some of the key features of an ELSS are:

  1. High returns: As an ELSS is a market-linked investment, it provides relatively higher returns as against other tax saving investments. While an ELSS could provide a market return ranging from 15% to 18%, a fixed deposit usually provides returns up to 8.2%, and the Public Provident Fund (PPF) and National Savings Certificate (NSC) provide returns up to 8% each. Similarly, investment in the National Pension Scheme can provide you returns up to 10.8%. High returns is among the key benefits of an ELSS. You must, however, understand that the risk profile of an ELSS is comparatively high, being a marked-linked investment. But, an ELSS remains the best tax saving mutual fund for people willing to undertake relatively higher risks. Also, while actual returns in other tax saving investments like PPF can be affected by market variables like inflation, an ELSS can cushion you from the adverse impact of inflation in the long-term by providing higher returns.
  2. Shorter lock-in period: An ELSS has a shortest lock-in period vis-a-vis other tax saving investment options. While an ELSS has a lock-in period of three years, fixed deposits usually have a lock-in period of five years. The PPF and NSC have lock-in periods of 15 years and five years respectively. Investment in the NPS is locked-in from the time of starting contributions till you reach 60 years of age. In the case of an ELSS, you can either withdraw your money after the lock-in period of three years, or continue with the scheme to earn further returns. Staying invested in an ELSS mutual fund can provide you with higher returns because of compounding. This is another key benefit of an ELSS.
  3. Tax benefits: An ELSS is the best tax saving mutual fund because apart from deduction up to Rs 1.5 lakh under Section 80C, long-term capital gains of up to Rs 1 lakh on this mutual fund is tax free.
  4. SIP option: A key benefit of an ELSS is that among all-tax saving instruments, this mutual fund provides you with Systematic Investment Option (SIP). This simply means that you can invest even a small amount of Rs 500 over a long period of time. The SIP amount gets automatically debited from your account. The highlight of the SIP option is that you can avail the benefit of compounding of your small investments over a long period of time.


Thus, an Equity Linked Saving Scheme is a type of mutual fund which not only offers tax benefits, but also provides higher returns from the market. Before investing in any mutual fund, you must always keep in mind that mutual fund investments are subject to market risks.Now, you can invest directly in mutual funds through Finserv MARKETS and get detailed portfolio summaries and insights into the performance of your investments. With nominal transaction costs, your investments are staggered across a vast spectrum of industries thus giving you a diversified portfolio and reducing your risk. Finserv MARKETS also provides an easy platform to calculate the return by user-friendly SIP calculator.

Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you Make it Happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no cost EMIs, 4 hours product delivery and numerous other benefits. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere!


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