Tax Benefits of Investing in Mutual Funds | Motilal Oswal
Tax Benefits of Investing in Mutual Funds | Motilal Oswal

Tax Benefits of Investing in Mutual Funds

Have you heard of ELSS (Equity Linked Savings Schemes)? If you are an investor who invests in mutual funds online, you surely would have. Additionally, if you are an investor who is concerned about saving tax, you may have invested in ELSS. These equity oriented mutual funds schemes offer tax benefits of investing in mutual funds under 80C of the income tax act. There are many other benefits of ELSS for an investor. You save on mutual fund taxation, generate tax-free income, all the while amassing a long-term corpus to meet your financial goals.

Before you decide to invest in mutual funds, you should know that would be taking equity exposure. As an asset class, equity is a risk form of investment. It’s important to be prepared for the risks and volatility associated with taking on investments.

  • How much can you invest?

Though the tax benefits are available for investments up to ₹1.5 Lakh only, you can take up more investments than ₹1.5 Lakh to create wealth. You can do this via monthly SIP instalments or a lump sum. You may try using an SIP return calculator to have a better understanding.

  • Do you need to fill any form?

To invest in any mutual investment scheme, investors must be KYC compliant. There is a process of KYC for your mutual fund investment you should follow. Once your KYC is complete, you can fill up a physical form along with the payment instrument. Alternatively, you can make an online investment in the fund of your choice.

  • What are the cut-off timings?

Since ELSS is an equity oriented fund, for all applicants of less than ₹2 Lakh, if submitted before 3:00 PM on a business day, the NAV (Net Asset Value) of that day is applicable. The NAV is calculated and published at the end of the day. If submitted after 3:00 PM, the NAV of the next business day applies. For applications of ₹2 Lakh and above, NAV is determined at the time when funds are credited in the fund house’s account.

  • What are the lock-in and liquidity conditions?

An ELSS has a lock-in period of at least 3 years from the date of investment, during when time, no redemption or switch is allowed. The ELSS lock-in period is reckoned on a first in first out (FIFO) basis when there are multiple investments in the portfolio, over a period of time.

  • Point to Consider

1. If you want to avail mutual fund tax benefits, check that the scheme is designated ELSS
2. Upon folio creation, you need to make mutual investment for each financial year that you want to avail the tax benefit for.

Final Thoughts

These are some of the simple points to consider when investing in mutual funds to save tax.  Before you get started investing in mutual funds, make sure you first understand how mutual funds are taxed, to enjoy tax free income.

Related Articles: Investing in Mutual Funds is Now Easy with MO Investor App | Invest In Mutual Funds Online In 5 Simple Steps |  How to Analyse Mutual Funds for Big Returns | Things to Know Before Investing in Mutual Funds | Mutual Fund - Need of Financial Plan

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