4 Reasons why you should Invest in Tax Saving Mutual Fund?

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why you should Invest in Tax Saving Mutual Fund

Financial planning is a critical part of our lives. It helps us to secure our future. Tax planning is an integral part of our lives. Tax deduction provides a mean for the individual to reduce their tax burden – Section 80C of the income tax act allows you to claim the deduction from taxable income by investing in certain investments. Tax saving mutual funds is one such investment. It is just like any other mutual fund with having tax saving benefits. These funds are eligible for tax benefits up to a limit of Rs. 1.5 lakh. Apart from that, there are other benefits too in investing in tax-saving mutual funds. Let’s look at the four possible reasons why to invest in these funds:

  • Lowest Lock-in-Period:

All tax saving instruments have a large lock-in-period. They typically remain in the range of 3 to 15 years. In those periods, you are not allowed to redeem your investment or make withdrawal except for some specific conditions. Since the lock-in-period is lowest (3 years) in tax free mutual fund, hence you don’t have to stay invested for a longer period.

  • Investing through Systematic Investment Plan:

SIP (Systematic Investment Plan) allows you to invest a fixed amount of money every month. It allows you to invest over the long term in small instalment without affecting your monthly or annual budget. It has an advantage of rupee cost averaging i.e. (more units are bought when the market price of shares is low and lesser units are brought when the price is high).

  •  Diversify and switch funds;

Diversification is an important feature of the mutual funds. That’s given an edge over other tax saving instrument such as fixed returns instrument. The fund itself is built upon investment in various instruments such as debt and equity. Apart from that investor can also diversify their strategies by investing in different fund houses or more than one fund. They have the option to stop investing in an underperforming fund to any point and start investing in other one.

  • Ease of Investment and Monitoring:

Investment in mutual funds is done in various ways. The investor can invest either through offline or through an online platform. Online platform makes the process of accessing the portfolio details account statement and investment quite easy. Apart from that the investor can access the performance of their NAV daily which helps in re-evaluating their investing strategy. The investor can also look upon the current and past mutual fund performance to decide which is the best tax saving mutual fund. They can invest through multiple modes of transaction: SIP (Systematic Investment Plan), One-time investment in a new fund or addition of the amount in the same fund. They can also switch from one fund to another fund.

In all tax saving investment, the flexibility of mutual fund schemes is un-paralleled. It provides the investor to diversify their portfolio as well as a flexible investment tenure to hold the investment for a longer time after completion of the lock-in period.


Disclaimer: Mutual fund Investments are subject to market risks. Please read the scheme documents carefully before investing. 

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