Top Mutual Fund Tax Benefits

Working your tax formalities can be tedious. That’s why most people in the country tend to postpone tax planning until they cannot procrastinate any longer. They invest in different avenues at the last minute. This is quite unfortunate because it has a significant impact on the state of your finances.

Tax planning is an integral aspect of personal finance planning. When done right, you can save a substantial amount of money each year. In this article, let’s discuss the different tax benefits of investing in Mutual Funds.

  • Income Tax benefit

    If you want to invest in Mutual Funds for tax benefits, Equity Linked Saving Schemes (ELSS) is the way to go. ELSS funds are well-known for the tax saving benefits they offer. You can currently enjoy benefits on investments for up to INR 1.5 lakh under Section 80C of the Income Tax Act each year with ELSS. By investing in ELSS, you can get the dual benefits of investment growth as well as tax savings. HDFC Bank will help you invest in specific tax saver Mutual Funds offered through its selected vendors, that not only provide you with investment returns but also offer tax benefits.
  • Tax-free dividends

    In addition to the tax benefits investing in ELSS funds, you also get to enjoy tax-free dividends. Mutual Funds pay out dividends to investors on a regular basis. So, if you invest in ELSS funds, the dividend you receive is entirely tax-free. The best part about this benefit is that there is no maximum limit on the dividend amount for exemption.
  • Lower lock-in period

    In principle, equity funds are ideal for long-term investments and most of them do not have a lock-in period. However, ELSS funds have a 3-year lock-in period. So, if you invest in an ELSS fund, you need to stay invested in the fund for a minimum of three years.

    However, this is a much shorter lock-in period compared to other popular tax saving investment options. The National Saving Certificate (NSC) has a minimum lock-in period of five years while the Public Provident Fund (PPF) has a minimum lock-in period of 15 years. Partial withdrawal is allowed after 7 years, in the case of PPF.

Read more about how to open a PPF account.

Higher returns

Investing in ELSS funds is an excellent option because you not only get to enjoy tax benefits, but you can also earn high returns over the long-term. Most of the regular tax-saving investment avenues offer an average yield of 7-8% per annum. In comparison, ELSS funds provide much higher returns. You can earn anywhere between 10-15% per annum on an average. In fact, some investors tend to earn even higher. This is because ELSS funds ride the growth cycle of stocks present in the fund. Higher the stock performance, better the returns.

If you are looking to save tax and are comfortable with investing in equities, Mutual Funds are an excellent option for you. ELSS can be a suitable tax-saving vehicle for you if invest with a long-term view. But to truly enjoy the benefits, start your tax planning early in the year. This allows you to choose the perfect ELSS fund for your portfolio carefully. Choose among the wide range of Mutual Fund products available in the market, through HDFC Bank NetBanking platform and invest for the long term for best returns.

Investor can claim a deduction of a maximum of Rs. 1.5 lakh per annum by investing in a tax-saving FD. Know about your returns with FD Calculator.

The tax saving fixed deposit is an investment financial instrument which lets you claim a deduction of 1.5 lacs annually.

Looking to apply for Mutual Funds? Apply now!

* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.