The best way to save money on taxes is to invest in a Tax Saving Mutual Fund. This type of investment allows you to take advantage of income tax benefits. These funds are also called Equity Linked Savings Schemes and invest up to 60% of their funds in equity oriented mutual funds. Section 80C allows you to get a maximum tax exemption of Rs 1.5 lakhs per year. Most tax saving mutual funds have a three-year lock-in period and are suitable for investors who are new to investing. Furthermore, these schemes are also known for building a disciplined financial portfolio.
Tax saving mutual funds can be divided into two categories – growth and dividend. Dividend schemes are tax-efficient because they provide additional income from the fund house. These investments can be withdrawn anytime without any penalties or lock-in periods. Both growth and dividend schemes offer long-term capital appreciation and can be redeemed at maturity. Most of these tax-saving mutual funds are managed by professional fund managers who are aware of the risks and rewards of investing in mutual funds.
Tax saving mutual funds can be invested in either a growth or dividend scheme. Dividend schemes offer you extra income from the fund house. The money can be reinvested or withdrawn whenever you like. A tax-saving mutual fund is the ideal way to save money on taxes. There are no lock-in periods for the growth scheme and no minimum balance requirements for withdrawals. The tax benefits are even better for these investment options.