4 Strong Reasons to invest in Tax Saving Mutual Funds

I am writing this article on March 12^th, 2011. 18 days remaining for the end of financial year i.e.; March 31^st.  Most of us have already made our tax related investments. However, if there is any scope still left u/s 80C; i.e. if you are yet to fully utilise Rs. 1 lakh max limit available u/s 80C (that enables you to claim deduction from your income), then you still have some time left (18 days to be precise) & every rupee of balance left should be deployed in well chosen Tax Savings Mutual Funds.

To know more about the various options available u/s 80c, read my previous article on this subject (http://niravpanchmatia.blogspot.com/2010/09/tax-saving-mutual-funds-or-elss.html ).

Now, Tax Saving Mutual Funds are a special category of mutual funds (also known as ELSS) that are eligible for deduction u/s 80c. Just like any other savings /investment avenue u/s 80c, there is a lock-in involved here. The lock-in period for tax saving mutual funds is the minimum at 3 years for any product u/s 80C. In case of PPF, it is 7 years(for partial withdrawal), 6 years for NSC, 5 years for Bank FDs & 5 years for ULIPs(too costly) & so on. Also, the returns over a 3 to 5 years period are one of the highest in case of Tax saving mutual funds.

Also, once the Direct Tax Code (DTC) comes into existence from 01/April/2012, as promised by the FM in his recent budget speech, tax saving mutual funds will cease to exist. (i.e., fresh investment in tax saving mutual funds will not be allowed; those who have already invested in them till Mar 31, 2012 will be eligible for deductions). So this financial year (FY 2010-11) and the next Financial Year (FY 2011-12) are the last two years in which you can invest in one of the most remunerative & efficient tax saving instrument available in India today.

To sum up, 4 strong reasons to Invest in Tax Saving Mutual Funds (ELSS):-

1. It helps you save on your taxes and at the same time you can take exposure to the equity market
2. Minimum lock-in period of just 3 years amongst entire bouquet of tax savings instruments
3. One of the most remunerative tax saving investment avenue (12 to 15% pa CAGR returns over 5 years)
4. The current financial year (FY 2010-11) and the next Financial Year (FY 2011-12) are the last two years in which you & I can invest in Tax Saving Mutual Funds as under the DTC regime, this wonderfull tax investment avenue will cease to exist.

So, grab the opportunity & invest in TAX SAVING MUTUAL Funds before March 31^st…..

(Just one caveat here; currently more than 25 Tax Saving Mutual Funds is available in the market; do your research well & consult a Mutual Fund Expert before choosing the right fund for yourself)

Happy Investing…………..