Guide to Tax-saving Mutual Funds for Salaried Employees

As tax planning becomes an integral part of financial management, understanding how to optimize your earnings while minimizing tax liabilities is essential. This guide aims to empower you with the knowledge to navigate the world of tax-saving mutual funds effectively.

 

Salaried individuals often seek ways to enhance their financial security while simultaneously saving on taxes. Tax-saving mutual funds, also known as Equity Linked Savings Schemes (ELSS), provide a strategic avenue for achieving these dual objectives. By investing in ELSS, you not only harness the potential of the equity market to grow your wealth but also gain the advantage of tax deductions under Section 80C of the Income Tax Act.

 

Our guide will delve into the nuances of tax-saving mutual funds, breaking down the benefits and risks associated with them. We will explore how these funds work, their historical performance, and how they stack up against other investment options. Moreover, we'll offer insights into selecting the right fund that aligns with your risk tolerance and financial goals.

 

Whether you're new to investing or looking to optimize your existing portfolio, this guide is designed to equip you with the knowledge needed to make informed decisions. Prepare to embark on a journey towards securing your financial future through tax-saving mutual funds, tailored to the unique circumstances and aspirations of salaried employees.

 

What are Tax Saving Mutual Funds?

 

Tax-saving mutual funds, also known as Equity Linked Savings Schemes (ELSS), are a category of mutual funds designed specifically to provide investors with a dual benefit of potential capital appreciation and tax savings. These funds are structured to help individuals, especially salaried employees, reduce their taxable income while simultaneously participating in the equity market.

 

The primary feature of tax-saving mutual funds is that they offer tax deductions under Section 80C of the Income Tax Act in many countries, subject to certain limits. This means that the amount invested in these funds, up to a specified limit, can be deducted from the investor's taxable income for that financial year. This deduction serves to effectively reduce the investor's tax liability.

 

Tax-saving mutual funds primarily invest in equities and equity-related instruments, aiming to generate long-term capital appreciation for investors. However, they come with a lock-in period, which means that the invested amount cannot be redeemed before a specific duration, usually three years. This lock-in period encourages long-term investment horizons and prevents investors from using these funds solely for short-term gains.

 

Investors benefit from the potential growth of their investment along with the tax benefits, making tax-saving mutual funds an attractive investment option for individuals looking to save on taxes while participating in the potential returns of the stock market. However, like any investment, these funds carry risks associated with market fluctuations, so it's essential for investors to conduct thorough research, assess their risk tolerance, and align their investments with their financial goals before investing in tax-saving mutual funds.

 

Top 10 Tax Saving Mutual Funds in India

 

The following is the list of top 10 tax-saving mutual funds in India:

 

1. Axis Long Term Equity Fund:

 

Axis Long Term Equity Fund is an Equity Linked Savings Scheme (ELSS) designed to offer tax-saving benefits under Section 80C while aiming for long-term capital appreciation. The fund adopts a growth-oriented approach, investing predominantly in equity and equity-related securities. It maintains a diversified portfolio across sectors and market caps to mitigate risks. With a mandatory three-year lock-in period, it aligns with ELSS norms.

 

The fund's historical performance showcases consistent returns, often surpassing its benchmark and peers. Managed by experienced professionals, it suits investors with moderate to high risk tolerance seeking tax-efficient wealth creation. As with all investments, potential investors should review the fund's details, consider their financial goals, and consult financial advisors to make informed decisions.

 

2. ICICI Prudential Long Term Equity Fund:

 

ICICI Prudential Long Term Equity Fund is an Equity Linked Savings Scheme (ELSS) designed to combine tax-saving benefits under Section 80C with the potential for long-term capital appreciation. The fund follows a dual approach of growth and value investing, investing in a diversified portfolio of equity and equity-related instruments.

 

It aims to achieve stable returns by selecting quality stocks across sectors and market segments. With a lock-in period of three years, it aligns with ELSS regulations. The fund has a track record of competitive returns, making it a reliable choice for investors seeking tax-efficient wealth creation. Managed by experienced professionals, it caters to investors with a moderate risk profile looking to optimize tax savings while aiming for consistent growth. 

 

3. Mirae Asset Tax Saver Fund:

 

Mirae Asset Tax Saver Fund is an Equity Linked Savings Scheme (ELSS) providing tax benefits under Section 80C while focusing on capital appreciation. It emphasizes growth by investing primarily in high-growth sectors and quality stocks. The fund maintains a diversified portfolio to manage risks effectively. With a three-year lock-in period, it adheres to ELSS norms. The fund has a history of competitive performance, making it an attractive choice for investors seeking tax-efficient wealth creation. Managed by experienced professionals, it suits individuals with a moderate to high risk tolerance aiming for long-term growth.

 

4. Aditya Birla Sun Life Tax Relief '96:

 

Birla Sun Life Mutual Fund's Aditya Birla Sun Life Tax Relief 96 Fund is an open-ended equity-linked savings programme. The long-term capital growth for investors is the primary investment goal of this fund, which has a three-year statutory lock-in period. To achieve this goal, investments are primarily made in a wide portfolio of equities and securities that are connected to equity. Additionally, a portion of its capital is invested in debt and money market securities. In March 1996, the plan was changed to an open-ended one, and Mr. Ajay Garg is now in charge of it.

 

Aditya Birla Sun Life Tax Relief '96 is a prominent mutual fund scheme in India. Launched in 1996, it offers tax benefits under Section 80C of the Income Tax Act, aiming to help investors save on taxes while fostering long-term wealth growth. Managed by Aditya Birla Sun Life Mutual Fund, the scheme focuses on investing in a diversified portfolio of equities with a lock-in period of three years, providing potential for capital appreciation. It caters to individuals seeking both tax-saving opportunities and potential market returns, aligning with their financial goals while leveraging the expertise of one of India's leading asset management companies.

 

5. Axis Focused 25 Fund:

 

Axis Focused 25 Fund is an actively managed equity mutual fund that aims for long-term capital appreciation by investing in a focused portfolio of up to 25 high-quality stocks across different sectors and market capitalizations. Unlike traditional tax-saving funds (ELSS), it doesn't have a specific mandate for tax benefits, but it can offer tax benefits under Section 80C due to its equity-oriented nature. The fund's focused approach allows it to capitalize on select opportunities, potentially yielding higher returns. However, this strategy also carries higher risk. Managed by Axis Mutual Fund, the fund suits investors with a higher risk tolerance seeking concentrated exposure to potentially promising stocks.

 

6. SBI Magnum Tax Gain Fund:

 

SBI Magnum Tax Gain Fund is a well-established mutual fund scheme in India, operated by SBI Mutual Fund. Launched in 1993, it is specifically designed to offer tax benefits under Section 80C of the Income Tax Act, making it an attractive option for individuals looking to save on taxes while potentially earning market returns.

 

The fund primarily invests in a diversified portfolio of equities and equity-related instruments, aiming to achieve long-term capital appreciation for its investors. It comes with a mandatory lock-in period of three years, ensuring that investors stay committed to their investments, which aligns with the fund's objective of promoting long-term wealth creation.

 

SBI Magnum Tax Gain Fund's seasoned management team employs a strategic approach in selecting stocks across various sectors, aiming to balance risk and reward. This diversified approach mitigates the impact of market volatility and provides potential growth opportunities.

 

Investors can choose between the dividend and growth options, tailoring their investment strategy based on their financial goals and risk appetite. The dividend option offers periodic payouts, while the growth option focuses on capital appreciation through reinvestment of profits.

 

7. Tata India Tax Saving Fund:

 

Tata Mutual Fund's Tata India Tax Saving Fund is an open-ended equity-linked savings programme. It invests the majority of its portfolio assets in equity-related instruments of reputable firms in order to generate long-term capital growth while also providing tax advantages under Section 80C of the Income Tax Act of 1961. This scheme's investment will be frozen for a mandatory term of three years. Mr. Rupesh Patel manages the fund, which was established in March 1996.

 

8. L&T Tax Advantage Fund:

 

The L&T Tax Advantage Fund is an L&T Mutual Fund open-ended equity-linked savings programme. The primary goal of the fund is to achieve long-term capital growth for investors through investments in a diverse portfolio that primarily consists of equities and equity-related securities, as well as other money market instruments. It has a three-year statutory lock-in term. Mr. Soumendra Nath Lahiri manages the fund, which was established in February 2006.

 

9. Aditya Birla Sun Life Tax Plan Growth:

 

Aditya Birla Sun Life Tax Plan Fund, an open-ended equity-linked savings plan provided by Birla Sun Life Mutual Fund, provides tax deduction advantages under Section 80C of the Income Tax Act of 1961. Through a predominance of investments in equities & equity-related assets, it seeks to provide long-term capital growth for the investors. With a statutory lock-in period of three years, this tax-saving plan invests from the bottom up. Ajay Garg, who has been managing it since its February 1999 debut, launched it.

 

10. HDFC Tax Saver Fund:

 

The HDFC Tax Saver Fund is an open-ended equity-linked savings programme provided by HDFC Mutual Fund. The investments made in this fund are locked for a statutory lock-period of three years. The fund primarily invests in a diversified portfolio of equity and equity-linked securities of mid-cap and large-cap corporations with the goal of producing capital appreciation for investors over a lengthy investment horizon. The fund was established in March 1996 and is managed by two experienced fund managers, Mr. Vinay R. Kulkarni and Mr. Rakesh Vyas.

 

Conclusion:

 

Salaried employees drive tax contributions in India. According to the available data, salaried employees pay three times more taxes than individual company taxpayers. Paying taxes on time is admirable, but so is seeking for the best tax-saving methods. While the tax burden can be rather heavy on the shoulders of salaried people, they can invest in a variety of instruments to take advantage of deductions and exemptions that assist in reducing this burden. When selecting tax-advantaged investment alternatives, consider how the returns will be taxed.