Best Tax Saving Mutual Funds in India to Invest in 2020

Best Tax Saving Mutual Funds - Consider the best performing tax saving mutual funds to invest in 2020 with Scripbox.com. Find the list of best tax saving mutual funds in India on the basis of Returns, Latest Nav, Ratings, Performance etc

Learn how Scripbox Recommends funds
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How does Scripbox rate funds?

Proprietary system to rate mutual funds

We use a proprietary system to rate mutual funds and based on that make a recommendation or rate the fund as top ranked.

We use a proprietary system to rate mutual funds and based on that make a recommendation or rate the fund as top ranked.

What Scripbox recommendations mean?

Scripbox algorithm recommends 2-4 funds for investment for an investment asset class such as large cap, diversified, liquid etc. When you invest for an objective, the algorithm suggests the appropriate asset class and funds.

Top Ranked

These funds are the top performers within a category of mutual funds considering a combination of criteria. The best amongst these funds are also labelled as Scripbox Recommended.

Scripbox algorithm classifies funds as "not recommended" when they perform poorly on a combination of criteria. These funds are usually the poorest performers within a category.

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Track Record

We look at consistent and long historical performance for our analysis

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Relative Size

We look at the size of the fund with respect to other funds in the category. Larger funds are preferred

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Category View

We check if the sub-category of the fund is recommended by us

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Consistency Of Performance

Consistency of performance over various tenures is analysed for a relative performance stack

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Track Record

We look at consistent and long historical performance for our analysis

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Relative Size

We look at the size of the fund with respect to other funds in the category. Larger funds are preferred

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Impact of Interest Rates

We check the relative interest rate risk of the sub-category of the fund. Lower the better

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Credit Quality Of Fund’s Portfolio

We check the relative interest rate risk of the sub-category of the fund. Lower the better

Equity Funds

Debt Funds

How to invest in best mutual funds?

Investing through Scripbox is made easy and paperless. All you need to do is follow the below steps and start investing.

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Choose a plan

Choose a plan to invest to start investing

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Invest online & transfer

Make instant payment or setup your investment for a later date

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Track your investments

Mutual fund companies allot you units and send confirmation via email & SMS. The same gets updated in your Scripbox Account

What are Best Tax Saving Mutual Funds?

What are Best Tax Saving Mutual Funds?

Tax saving mutual funds are just like any other mutual fund with the only difference of bearing a tax benefit. An investment made towards a tax saving mutual fund is allowed as a deduction under section 80C of the Income Tax Act, 1961.

Majorly tax saving mutual funds are ELSS wherein the investment is equity-oriented and the lock-in period is 3 years.

 

How do Tax Saving Mutual Funds Work?

The process of investing in a mutual fund can be listed in just 4 steps

Step1 - Investors pool their investments with a fund manager

Step2 - The fund manager invests the pool of investment in various securities

Step3 - These securities generate returns for the investors

Step4 - The returns are paid back to the investors or invested back in the fund, as chosen by the investors

The securities selected for investment belong to different industries and sectors. This is done to ensure even if one industry generates low or no returns, other industries can balance the expected returns.

Industry % of the total investment
Automotive 23%
Banking 24%
Power 17%
FMCG 19%
Hospitality 17%

Tax saving mutual funds have a lock-in period of 3 years from the investment until the maturity of the funds. In case the investment is made through SIP, the lock-in period is calculated for every installment of investment.

Example

If SIP is made monthly from January 2020, then the installment of January 2020 will be matured in January 2023. For then the installment of February 2020 will be matured in February 2023

The redemption of investments is possible only for the unlocked units at the current NAV price for the units available for redemption at maturity. The investor needs to submit a withdrawal form to the fund manager and the amount will be credited to the account.

 

Features of Best Tax Saving Mutual Funds

Tax saving mutual funds or Equity Linked Savings Schemes are a better option of investments than other tax saving schemes. The features of ELSS are listed below.

The lock-in period for the investment made is 3 years

No limit on Maximum Investment. Minimum Investment Amount differs for fund houses. However mostly the minimum investment amount is Rs 500 only An entry load and exit load applies to ELSS schemes. These are fees charged by the fund managers on purchase/sale/redemption/transfer of the fund units by the investors. Deduction on investment is allowed under section 80C up to Rs 1.5 lakh

Tax saving mutual funds are Equity Linked Savings Schemes and open-ended in nature

Investment in ELSS funds exposed to market fluctuations and are risky. However, the risk level depends on the investor and his understanding of risk. Risk is a factor which is dependent on what is the limit of an individual given his spending, cost of living and income.

 

Benefits of Investing in the Tax Saving Mutual Funds

Investment in ELSS funds are ideal investment option for investors who wish to save tax and earn a higher return at the same time.

The key benefits of investing in ELSS are listed below:

Invest in equity while saving

ELSS allows an investor to benefit save money and enjoy the growth and returns associated with securities in the ELSS portfolio. While other saving schemes offer an average of 8% returns, ELSS provides better returns being a good portfolio with diverse and quality stocks.

Inspire saving habit

ELSS allows an investor to invest as low as Rs 500 per month, turning small savings into an investment developing habit of continuous savings.

Tax Benefit

One of the major reasons to invest in ELSS is the tax benefit it carries. The principal amount of investment is allowed as a deduction u/s 80C along with tax benefits of maturity amount and returns earned.

Other Benefits

ELSS allows an investor to invest monthly through SIPs and thus eliminating the need to invest a huge amount at once.

These investments are managed by professional fund managers, hence a layman having less knowledge about the market and its trends can invest freely.

A portfolio of various securities from different industries and sectors is made, hence minimizing the market risk of investing in the equity market

 

How to invest in Top Performing Mutual Fund?

An investor can invest a lump sum one time or through SIP periodically. An investor can choose to invest lump sum one time if he has considerable corpus to invest for a longer-term. While SIP is a regular investment over a period of time. 

An investor can choose to invest monthly, quarterly, or half-yearly. SIP mutual funds are recommended for the first time mutual fund investors.

Investing through Scripbox is made easy and paperless. All you need to do is follow the below steps and start investing.

  • Choose a plan to invest to start investing
  • Set-up your investment account
  • Make instant payment or setup your investment for a later date
  • Money gets deducted from bank and gets transferred directly to mutual fund companies
  • Mutual fund companies allot you units and send confirmation via email & SMS. The same gets updated in your Scripbox Account
 

Taxation on Best Tax Saving Mutual Funds in India

The principal amount invested in ELSS is allowed as a deduction under section 80C up to Rs 1.5 lakh of the Income Tax Act, 1961.

Long-Term Capital Gains (LTCG) tax is applicable on ELSS funds as the lock-in period is 3 years. LTCG @ 10% is levied on the capital gain earned over Rs 1 lakh

 

ELSS vs Other Tax Saving Investments

Other than ELSS , there are other tax saving investment options like fixed deposits, public provident fund, national pension scheme and others. 

We have mentioned a comparison below to help understand advantages and disadvantages over ELSS vs other schemes

Particulars ELSS Public Provident Fund National Pension Scheme Fixed Deposits
Rate of interest 12% to 14% 8.10% 8% to 10% 7% to 9% varies Bank to Bank
Risk Depends on market fluctuation Low Risk Low Risk Low Risk
Lock-in Period 3 years 5 years Till Retirement 5 years
Tax Advantage on Investment Principal amount deductible u/s 80C deduction up to Rs 1.5 lakh  Principal amount deductible u/s 80C deduction up to Rs 1.5 lakh Principal amount deductible u/s 80C deduction up to Rs 1.5 lakh  Principal amount deductible u/s 80C deduction up to Rs 1.5 lakh
Tax on Returns 10% LTCG Taxable Partially Taxable Taxable
 

Best Tax Saving funds to invest

Frequently asked questions

Who should invest in ELSS tax saving mutual funds?

Among all investment schemes ELSS is suitable for an investor who has a tolerance for risk and a long-term financial goal to save taxes. An investor who wishes to invest a fixed or variable amount monthly can also choose to invest through SIP.

It is very convenient and easy nowadays to invest through SIP, you only need to link your saving account to the fund manager. Then provide an instruction to deduct investment amount every month from your saving account. 

You can use Scripbox's SIP calculator to estimate the wealth created, maturity value of the SIP investments made.

Are ELSS tax saving mutual funds risky?

ELSS tax saving mutual funds are exposed to market fluctuations and are risky. However, the risk level depends on the investor and his understanding of risk. Risk is a factor which is dependent on what is the limit of an individual given his own spending, cost of living and income.

How much amount can one invest in ELSS tax saving mutual funds in the financial year?

There is no upper limit for investing in ELSS. But while considering tax saving schemes, an investment in ELSS tax saving mutual funds are allowed as a deduction up to Rs 1.5 lakh only

Can I withdraw the tax saving mutual funds?

Yes, withdrawal of tax saving mutual funds is allowed at the maturity of the funds. The units available for redemption can be redeemed. But a premature withdrawal of funds before 3 years of lock-in period is not allowed

Which mutual fund investment is tax-free in India?

Being tax saver schemes ELSS are the funds which provide a tax advantage. The investments made are allowed as a deduction up to Rs 1.5 lakh and the capital gains up to Rs 1 lakh are tax-free.

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