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Tax Saving Solutions

Tax Saving Mutual Funds

What are Tax Saving Mutual Funds?

Tax saving mutual funds are just like any other mutual funds with the added bonus that investments made in them are eligible for tax benefits under section 80C. Most of the tax saving mutual funds are ELSS schemes and make investments in equity markets.

ELSS schemes tend to come with a lock-in period of 3 years, which means that the investment cannot be withdrawn for till the end of that time. If the investment is being made in monthly installments (SIP) then the lock-in period for each installment is 3 years. For example, if the first investment was made on the 1st of Jan 2015 and the second one on 1st of February 2015 then on the 1st of January 2018 ONLY the first installments will get unlocked. The second installment will remain locked till the 1st of February 2018

Comparison between ELSS vs. PPF:

Particulars

PPF

(Public Provident Fund)

ELSS

(Equity Linked Savings Scheme)

What is the risk involved?

Being backed by the Government of India, PPF investments are very safe.

Being an equity fund, the investments are subject to market risks.

What returns can I expect?

The Government declares the rate of interest for PPF investments every year. It is usually between 7 and 8% p.a.

Being market-linked, the returns can vary depending on the scheme selected but an investor can expect an approximate return of 12-14%.

What are the tax benefits?

EEE (Exempt Exempt Exempt) – The invested amount is exempt from taxes at the time of investment, accumulation, and withdrawal.

EEE (Exempt Exempt Exempt) – The invested amount is exempt from taxes at the time of investment, accumulation, and withdrawal.

Is there any lock-in period?

Investment is locked in for a period of 15 years.

(After the 5th year partial withdrawals are permitted)

ELSS investments have a lock-in period of 3 years with no possibility of premature withdrawal.

Is there a maximum time limit for investment?

PPF investments cannot be made for more than 15 years.

ELSS investments have no upper time limits.

How much can I invest?

You can invest anything between 500 and 150,000 in a financial year, either in a lump sum or in 12 installments.

You can invest as much as you want. However, under Section 80C of the Income Tax Act, only 150,000 in a financial year will be allowed for a tax deduction.