When you cross the annual Income Slab of INR 5 Lakhs then you start thinking about how to save tax on your Income because Standard Deductions only help to save tax on an annual income of up to INR 5 Lakhs. So, your investments in the market can bring you saving on the taxes under Section 80C of the Income Tax Act. The Tax Saver mutual funds can be a good option for you to get rid of taxes and save some money. Here, you must explore the importance of Tax Saver Mutual Funds and see how they can help you save taxes on your income. It brings you both savings on taxes and earns a return on your investments. There are many advantages of making an investment in mutual funds that save tax.
Why Tax Saver Mutual Funds are Important?
You can check the answer to this question below and see the various benefits of investing in Tax Saving Funds.
You can yield a high return on Tax Saver Mutual Funds. These funds are linked to equity investments and taking calculated risks and managing funds efficiently can yield high returns on the investments. The risk factors are there in this investment but choosing the best performing mutual funds will yield a high return in a long run.
This mutual fund will help you to save tax on your annual income. You can claim a deduction under Section 80C of the Income Tax Act. At the time of filing the Income Tax Return the amount of investments done in the tax saver mutual funds can be shown in the deductions and you will get a high return from the IT office.
Short Lock-in Period
Usually, when you make large investments then there are long lock-in periods during which you cannot withdraw your own investment amount. But in the Tax Saver Funds, the lock-in period is short and after the expiry of the lock-in period, you can sell funds and withdraw your investment amounts. The liquidity phase starts as soon as the lock-in period expires.
If you are making investments in the Tax Saver Mutual Funds then make sure you invest the money for a long period of time to yield high returns. Diversification of mutual funds will bring you high returns if the investment is made for more than 5 years. You can achieve your goals if you invest your money even after the expiration of the lock-in period.
SIP Option is Available
It is not possible for every individual to make a lump sum investment in mutual funds therefore he can opt for a systematic investment plan and it is also known as SIP. You will have to make a monthly contribution to the Tax Saver Mutual Funds and it can be as low as INR 500 per month. But before making any investment in mutual funds, you must check the best mutual funds for SIP. There are thousands of mutual funds available in the market and you must check the percentage of return before investing a single penny.
Types of Tax Saver Mutual Funds
There are two types of Tax Saver Mutual Funds:-
- Growth Fund– In this investment, at the time of withdrawal the full value of the investment is realized.
- Dividend Payout– In the Dividend Payout Investment, you can either collect the tax-free dividend at a certain span of time or reinvest that dividend and get the lump sum payment including returns at the time of withdrawal.
After going through the importance of Tax Saver Mutual Funds, you must have realized that it will not only save money on taxes but also give you a good return on your investments.