It is time to think about tax-saving instruments again. Investments in fixed deposits, Public Provident Fund, and LIC are common. But many people may not know that mutual fund investments can also help save tax.

What is a mutual fund?

Mutual funds are investment schemes. As part of these, many people invest money in shares, bonds, and stocks, among others. Professionals manage these schemes.

What are tax-saving mutual funds?

A tax-saving mutual fund in India is like any other mutual fund. It just comes with an added benefit. It qualifies for tax savings under Section 80C of the Income Tax Act. Most tax-saving mutual funds are equity-linked saving schemes (ELSSs). ELSSs have diversified portfolios. They invest mainly in equities.

Types of ELSS

There are two types of ELSSs: dividend and growth. In a dividend scheme, whenever the fund declares a dividend, investors earn a dividend income. Investors can earn the dividend even during the lock-in period. These are not subject to tax. The investor can withdraw the dividend or reinvest it in the fund. In a growth scheme, the investor receives a lump-sum payment after three years.

Features of mutual fund solutions in India

  • You can start with an investment of Rs 500.
  • There is no upper limit for investing
  • You can choose your mutual fund according to the risk factor it carries. These can be high, low, or medium.
  • Tax-saving mutual funds are usually open-ended schemes. These funds buy and sell units continuously.
  • Mutual funds offer nomination facilities.
  • Most ELSSs have entry and exit loads. These are fees paid to the mutual fund providers.

Why invest in mutual funds

  • The returns from an ELSS are tax-free.
  • Claim up to Rs 1.5 lakh of your tax-saving mutual fund investment under Section 80C in a financial year.
  • You can earn long-term capital gains. These are not taxable.
  • Since the portfolios are diverse, the risk goes down. You can even choose a low-risk tax-saving mutual fund if you are averse to risks.
  • If there is an emergency, you can withdraw from the dividend income. You can do this even during the lock-in period.
  • Mutual funds have the lowest lock-in period of only three years.
  • You can continue to invest in the mutual fund even after three years.
  • Tax-saving mutual funds are open-ended. So, you can invest in them at any time.
  • You do not need to have in-depth knowledge of the market to invest in a mutual fund. Professionals manage these funds in any case.
  • Cannot make a one-time investment? You can pay through a systematic investment plan instead.
  • Mutual funds help you plan for future expenses, such as buying a vehicle.

Best-performing mutual fund investment solutions in India

These are some of the best-performing mutual funds in India:

  • Axis Long-Term Equity Fund
  • Reliance Tax-Saver Fund
  • DSP Black Rock Tax-Saver Fund
  • Birla Sun Life Tax Relief 96
  • Franklin India Taxshield Fund

How to invest in mutual funds

You can invest in mutual funds through a bank or a broker. To save on broker commissions, you can also invest in mutual funds online. Every mutual fund has its own website. You can log on to the site, register yourself, and invest. But you must have your KYC ready. You can download the KYC form from

Summing up

A mutual fund is a smart investment tool. It has a potential for high returns and long-term capital gains. When you plan your finances, invest in tax-saving mutual funds. Invest in mutual funds to not only save for the future but also to gain through tax savings. Apply for mutual funds online to save time and money. Choose from the best-performing mutual fund investment options that are available today.