Everyone wants to save taxes and grow wealth at the same time. That’s where tax saving mutual funds come into play. These funds not only help you save taxes under Section 80C but also build long-term wealth through market-linked returns. Yet, choosing the right one isn’t easy because every fund performs differently. With the right guidance from experts like Glorious Path, you can identify the mutual funds investment plans that best suit your financial goals. In this blog, let’s break down how you can find the best mutual funds to invest in, understand how equity mutual funds work, and learn the correct way to avoid mistakes when dealing with aspects like mutual fund short term capital gain tax.
What Are Tax Saving Mutual Funds and How They Work?
To make the right investment, you must first understand what tax saving mutual funds really are and how they function. Here’s a quick look:
- These are commonly known as ELSS (Equity-Linked Savings Schemes) that invest primarily in equity mutual funds.
- You can claim a deduction of up to ₹1.5 lakh a year under Section 80C when you invest in such mutual funds investment plans.
- The market performance of the fund determines the returns.
- Long-term capital gains (after 12 months) are taxed at 12.5%, while short-term gains (less than or equal to 12 months) are taxed at 20% for equity-oriented funds.
- For non-equity-oriented funds, gains after 24 months are taxed at 12.5%, while gains within 24 months fall under your regular slab rate.
- These funds save taxes and build wealth, and Glorious Path helps you choose the best mutual funds to invest in according to your goals.
Step-by-Step Process to Choose the Best Tax Saving Mutual Funds
Hundreds of tax saving mutual funds can confuse you, but a clear process helps you make confident choices. Follow these steps to do it:
- Step 1 – Define Your Goals: Decide why you want to invest and for how long. Long-term wealth creation or short-term tax relief? Knowing this helps tailor your mutual funds investment plans effectively.
- Step 2 – Assess Risk Appetite: Some equity mutual funds carry higher market risks. If you’re a conservative investor, go for diversified funds instead of sector-focused ones.
- Step 3 – Compare Performance: Look for funds that have consistently beaten their benchmarks in the last 3 to 5 years. Glorious Path provides insight into historical performance and rankings of the best mutual funds to invest.
- Step 4 – Evaluate Fund Manager Experience: Skilled fund managers add real value. Research their past results before committing.
- Step 5 – Understand Taxation: Always check how mutual fund short term capital gain tax or long-term tax rules will impact your returns.
- Step 6 – Invest Systematically: Don’t wait to time the market. Instead, start with a SIP approach, which spreads out your investment risk.
Factors to Consider Before Investing in Tax Saving Mutual Funds
Before putting your money into any tax saving mutual funds, you must analyse a few important things. These factors ensure that your mutual funds investment plans align perfectly with your income and future needs.
- Fund Category and Type: Check whether the fund is equity-oriented or balanced. It affects both risk and your mutual fund short term capital gain tax.
- Lock-in Period: ELSS funds require a minimum of 3 years, so plan accordingly.
- Expense Ratio: Lower fees mean more of your money stays invested.
- Past Returns & Consistency: Consistent 3-5 year returns show strong fund management.
- Tax Efficiency: Equity-oriented mutual funds investment plans have a long-term capital gain tax of 12.5% after 12 months, making them tax-efficient.
- Expert Advice: Consulting Glorious Path ensures you pick the best mutual funds to invest in that fit your risk level and time horizon.
Myths and Facts about Tax Saving Mutual Funds
Many investors avoid tax saving mutual funds because of common misconceptions. Let’s separate myths from facts for better clarity.
- Myth 1: These funds only save taxes, not create wealth.
Fact: They primarily invest in equity mutual funds, which can offer high long-term returns, helping you grow wealth and save taxes at once. - Myth 2: All profits are tax-free.
Fact: Only long-term gains (beyond 12 months) attract a 12.5% tax rate for equity-oriented schemes, while mutual fund short term capital gain tax is 20% if sold earlier. Glorious Path can help you plan withdrawals smartly to reduce tax outgo and increase profits through better mutual funds investment plans.
Common Mistakes to Avoid While Investing in Tax Saving Funds
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Even the best mutual funds to invest in can underperform if you make these simple mistakes. Avoid them to maximise your money, and let Glorious Path guide you as your trusted partner.
- Starting Late: Many investors wait until year-end to invest in tax saving mutual funds, missing out on the benefits of early compounding.
- Ignoring Goals: Don’t pick mutual funds investment plans just for tax benefits; align them with your life goals.
- Not Understanding Risk: All equity mutual funds carry some market risk. Know it before you invest.
- Poor Tax Planning: If you don’t account for mutual fund short term capital gain tax, you might lose more than you’ve saved.
- Neglecting Regular Review: Review your investments at least once a year. Glorious Path provides timely portfolio reviews to keep your returns on track.
- Ignoring Professional Help: With so many options in the market, it’s easy to get confused. Let Glorious Path guide you in finding and managing the best mutual funds to invest in for consistent wealth growth and tax efficiency.