Mutual Funds

Is Mutual Fund Tax Free ?

No, mutual funds are not tax free with the exception of ELSS. Most people when start investing in Mutual Funds are totally clueless about the relevant schemes and applicable taxation. This can be risky for individuals with low incomes and the ones interested in tax saving schemes.

Which Mutual Fund Schemes keep your Money tax Free?

Any long term equity fund is a tax saving scheme or also called as equity linked savings scheme. Hence, investments in ELSS (Equity linked savings scheme) qualifies for tax deduction upto 150,000 under section 80C of the IT Act in your salary. If you’re investing more into ELSS, then it’s completely wasteful. Anything more than 1.5 lacs will not get you any extra tax benefits. So, it is easy to put that money into fruitful channels. All other income tax breaks should be applied elsewhere. However, equity linked schemes comes with a compulsory lock-in period of 3 years. It will not be possible to sell them before the lock in period gets over.

Invest only the required amount in an equity linked mutual fund, the rest can be put into open ended mutual funds.  It is important to note that the longer you keep your mutual fund units, the more tax saving they become. Since, tax on long-term gains is much lower compared to tax on short-term gains. It is simple to explore all mutual fund options online and reach the better offer for investment.

Infact, mutual funds invested in government schemes or bonds are really helpful in reducing the taxable income. Tax-free or tax-exempt funds have interest amounts which generated by these bonds is not subject to income tax valuation. In some other cases, bonds issued in the state of residence could be triple tax free exempting all state, local and federal income taxes. Though,not all bonds are tax savers.

However, when mutual funds guarantee you tax benefits, they are quite meagre with the returns at offer.

This is one of the reasons why risky fund sources have higher rate of interest. Tax free mutual funds are just a few in number but investment in one of them can save you money.

However, when mutual funds guarantee you tax benefits, they are quite meagre with the returns at offer.

This is one of the reasons why risky fund sources have higher rate of interest. Tax free mutual funds are just a few in number but investment in one of them can save you money.

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