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Wednesday, January 13, 2016

How do Tax Saving Mutual Funds work in India

 

How do Tax Saving Mutual Funds work?

 

When an investor invests their money in mutual funds, the funds are added to the pool. The funds are then invested in the equity markets in such a way that even if one investment incurs losses, the other investment manage to mitigate the loss. For example, the breakup of an invest in a particular fund may look like:

  • Automotive industry 6.56%
  • Banks 17.56%
  • Consument durables 5.34%
  • Consumer non-durables 5.66%
  • Power 5.92%
  • Software 8.93%
  • Pharmaceuticals 9.99%

This means that 6.56% of the invest will be put in the automotive industry and 17.56% in banks and so on.

ELSS schemes tend to come with a lock-in period of 3 years, which means that the investment cannot be withdrawn for till the end of that time. If the investment is being made in monthly instalments (SIP) then the lock-in period for each instalment is 3 years. For example, if the first investment was made on the 1st of Jan 2015 and the second one on 1st of February 2015 then on the 1st of January 2018 ONLY the first instalments will get unlocked. The second instalment will remain locked till the 1st of February 2018.

When it comes time to withdrawals, investors can see how many units have gotten unlocked and redeem them at the current NAV. The NAV (Net Asset Value) is the amount you will get for each unit. To make withdrawals, you will need to know the number of available units and submit a claim form to the mutual fund provider. They will credit the amount to your account as soon as it is processed.

Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds

Top 10 Tax Saving Mutual Funds to invest in India for 2016 or Best 10 ELSS Mutual Funds in india for 2016

1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

3. Franklin India TaxShield

4. ICICI Prudential Long Term Equity Fund

5. IDFC Tax Advantage (ELSS) Fund

6. Birla Sun Life Tax Relief 96

7. DSP BlackRock Tax Saver Fund

8. Reliance Tax Saver (ELSS) Fund

9. Religare Tax Plan

10. Birla Sun Life Tax Plan

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