Can you save income tax through investing in mutual funds?

Anmol Gupta

Yes, in following way.

ELSS (Equity Linked Savings Schemes) - Mutual Fund schemes categorized as ELSS gives you tax benefit under section 80C. You can reduce your taxable income by upto Rs. 150,000 through ELSS. ELSS schemes have a lock in of 3 years so you can not withdraw money before 3 years. Suppose you invest 1 Lakh in ELSS, your taxable income reduces by 1 Lakh. If you invest Rs 2 Lakh in ELSS, your taxable income will get reduced only by Rs. 1.5 Lakh.

However, should you invest money in ELSS just to save tax is more important question.ELSS are equity schemes hence they are typically meant for long terms (read >10 years). Also, there many ELSS schemes out there in market but not all are good in terms of return you get from them. You must also consider your financial goals, risk taking appetite and your overall porfolio to figure out how much amount you should put in ELSS and which particular scheme.

Happy to answer any questions.

Originally answered on Quora.

About the Author
Anmol Gupta
Anmol is CEO at 7Prosper. He is SEBI Registered Investment Adviser, with expertise in Finance and Technology domains. Anmol is committed to help people achieve their financial freedom.

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