What are Tax-Saving Mutual Funds?

What are Tax-saving mutual funds

Tax-saving mutual funds are also known as Equity Linked Saving schemes (ELSS). Tax-saving mutual funds are open-ended equity funds meaning they have a diversified portfolio of investors’ money that can issue an unlimited number of shares. 80% of the total assets are invested in equity and equity-related instruments. These mutual funds come under section 80C of the Indian tax law and offer a tax benefit to investors.

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A sum of INR 1.5 lakh can be deducted under sec section 80C. There is a minimum amount set for investment in ELSS which is INR 500 through SIP and lump sum way. This is mandatory to have these funds for a lock-in period of 3 years after which an individual can redeem his money. It is advised to stay invested for a minimum period of 5 years to get the best results.

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Advantages of investing in a tax-saving mutual fund

Tax benefit

Tax-saving mutual funds are known for their tax benefits for investors. An individual can use the instrument of tax-saving mutual funds to claim tax deductions up to INR 1.5 lakh. There is no bar on the limit of investments in mutual funds. There is a lock-in period of at least 3 years. The maximum deductible amount is INR 1.5 lakh.

Method of investment

An individual can invest in tax-saving mutual funds in two ways: SIP or lump sum. If an individual has some extra amount available for investment then they can go with the lump sum way of investing. SIP investment is a monthly type of investment.


There is a lock-in period of 3 years for tax-saving mutual funds and it is the lowest in comparison to other tax-saving modes. A partial or lump sum withdrawal can be made after the lock-in period this helps in maintaining liquidity.


Like other modes of tax-saving, tax-saving mutual funds disclose all the information regarding the schemes regularly. This makes tax-saving mutual funds a transparent medium of investment.

High Returns

Top tax-saving mutual funds or ELSS funds have the potential to perform better and give you high returns in the long run. Other tax-saving options such as PPF, EPF, and fixed deposits have generally low returns as compared to tax-saving mutual funds.

Professional management

Professionals such as financial experts on the matter deal with tax-saving mutual funds. If someone is looking to invest in a particular mutual fund, they can do so with the fund manager’s help. This professional management helps an individual understand the investment easily and they can invest without any hurdles.


Tax-saving mutual funds are a better choice if someone is looking for a higher return. Mutual funds are related to market risks and are known for their volatility. But there are many options available in the market that you can avail of and benefit from. Mutual funds save you a good amount of money as well as give you good returns in less time as compared to other tax-saving options available in the financial market.

Credits: Akshat Shrivastava


What are the Advantages of investing in a tax-saving mutual fund?

There are six advantages of investing in tax-saving Mutual funds

1. Tax benefit
2. Method of investment
3. Liquidity
4. Transparency
5. High Returns
6. Professional management

What are the Types of investments?

Three types of investments are,

Cash equivalent.

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