EQUITY LINKED SAVINGS SCHEME
According to this scheme, a taxpayer can have the benefit of a deduction in his taxable income through investing in Tax Saving Mutual Funds.
THIS EQUITY LINKED SAVINGS SCHEME WAS INTRODUCED AT THE END OF 2005.
DETAILS AND FAQ
What is a Mutual Fund (MF)?
A mutual fund is a kind of investment that uses money from many investors to invest in stocks, bonds or other types of investment. A fund manager (or “portfolio manager”) decides how to invest the money, and for this he is paid a fee, which comes from the money in the fund. Mutual funds are usually “open ended”, meaning that new investors can join into the fund at any time. When this happens, new units, which are like shares, are given to the new investors. There are thousands of different kinds of mutual funds, specializing in investing in different countries, different types of businesses, and different investment styles. There are even some funds that invest only in other funds. (Credits: Wikipedia)
- Tax Saving MFs invest in stocks in the Indian stock markets. The returns from these MFs will depend on their investment performance in the stock market.
- The minimum investment should be ₹500, and higher amounts invested should be in multiples of 500.
- Maximum allowed investment is ₹1,50,000.
- Investments in Tax Saving MFs cannot be sold for 3 years from the date of purchase, also known as a lock-in period.
- Mutual Funds can also be bought using a Systematic Investment Plan (SIP), where the sum to be invested could be spread over the course of a year, investing monthly or quarterly.
- Depending on the MF that is selected, dividends are either paid-out or reinvested.
- The amount received on selling Tax Saving MFs at the end of the lock-in period (of 3 years) is free of tax.
While deciding to buy a Tax Saving Mutual Fund, pay attention to:
a. 3-5 year performance
b. Expense ratio
c. Fund Manager’s track record
It is important to be aware that investing in Mutual Funds carries the same risk as investing in the stock market. There is no guarantee of a profit or loss. However, in the long run, past records show that MFs have more often than not outperformed other investment options under section 80C.