Are you ready to spare most of your salary portion each month towards paying tax? Well, really not. It's best to look for tax saving alternatives that can provide shelter to the amount you earn every month. You can go for tax saving options in mutual funds if you want one for yourself. As Tax saving mutual funds is an open-ended and diversified equity mutual fund where you can park away majority of your amount in equities.
Since, it falls in the category of equity mutual fund, the returns amassed from ELSS fund becomes reflective of the returns from the equity markets. This mutual fund comes with a lock-in period of 3 years from the date of investment where you get tax concession of ₹ 1,50,000 in accordance to the
Income Tax Act, 1961.
Moreover, savings can also be done upto ₹ 46,350(if you comes under the highest income slab). While continuing your investment in tax saving mutual fund after 3 years allows you to build potential wealth apart from tax saving. It is all because of the twin benefit of Capital Benefits and tax advantage you make seek from ELSS which instills a disciplinary manner of investing for generating higher returns.
To start investing in ELSS, you can start with Systematic Investment Plan(SIP) where you can begin your investment from as low as ₹ 500. However, there is no maximum limit on SIP. It is based on the flexibility of each investor of whichever amount he/she wants to begin with. And if you wish to exit from such scheme, you can do so by selling it after 3 years.
Tax Saving mutual funds gives you an overall coverage of tax planning along with evaluating your risk taking appetite, goal setting and asset allocation. If not SIP, now you can chart out your monetary expenditures for the entire year rather than contributing in the lump-sum amounts at the end of the year. Most importantly, tax planning cannot be done within a day but exercised year long giving you ample of time to plan and evaluate various tax planning options before finalizing for one.
Let's take an example to understand clearly how ELSS proves to be advantageous for a general investor:
Mr. Parul Shekh is a software professional who works for an MNC in Gurgaon. He earns ₹ 7.50 lakhs per annum as his gross salary. Similar to other salaried earners, he is also approached by his office accounts department for showing income tax declaration form. He wants to save tax but not sure of how much he can actually save if he prefers ELSS tax saving as one of his investment alternative. He contacts his chartered accountant and carefully assessed the following details:
1. Without ELSS/80 C Tax Saving Investment
Gross Total Income ₹7,50,000
Deductions under sec-80 C Nil
Total Income ₹ 7,50,000
Total Taxable Income ₹77,250
Tax Saved Nil
2. With ELSS/80 C Tax Saving Investment
Gross Total Income ₹ 7,50,000
Deductions under sec-80 C ₹ 1,50,000
Total Income ₹6,00,000
Total Taxable Income ₹46,350
Tax Saved ₹ 30,900
Note : Tax calculation done for a male person less than 60 years in recepit of salaried income for the assessment year 2017-18.
Tax Saving Mutual Funds 2017
Want to know various tax saving mutual funds 2017? So, gear up yourself to find the various plans which can save you from not coming in the scanner of tax. Before that look for the criterion described below which help you to ascertain your best tax saving mutual fund 2017 to invest in :
Mean rolling returns : that is rolled daily for the past three years
Consistency : in the past three years
Downside risk which outweighs the negative returns offered by the mutual fund scheme for this.
X= Returns below zero
Y=Sum of all squares of X
Z=Y/number of days taken for computing the ratio
Downside risk=Square root of Z
Outperformance : It is calculated by using the Jensen's Alpha for the past three years. Jensen's Alpha depicts the risk-adjusted return amassed by a mutual fund scheme comparative to the expected market return assessed by the Capital Asset Pricing Model(CAPM). Higher Alpha means that the portfolio performance exceeds the returns estimated by the market.
Average returns generated by the MF Scheme - [Risk Free Rate + Beta of the MF Scheme * {(Average return of the index-Risk free rate)}
The threshold asset size is ₹100 crore
The best performing ELSS Funds for 2017 are as follows:
1. DSP Black Rock Tax Saver
The annualized performance returns for 1-year, 3-years and 5-years period are as follows:
1-year Returns : 20.85%
3-year Returns : 18.55%
5-Year Returns :22.69%
2. Axis Long-term Equity Fund
The annualized performance returns for 1-year, 3-years and 5-years period are as follows:
1-year Returns : 15.81%
3-year Returns : 17.33%
5-Year Returns : 24.63%
3. Birla Sun Life Tax Relief 96
The annualized performance returns for 1-year, 3-years and 5-years period are as follows:
1-year Returns : 20.95%
3-year Returns : 19.99%
5-Year Returns : 23.21%
4. Franklin India Tax Shield
1-year Returns : 15.92%
3-year Returns : 16.75%
5-Year Returns : 20.12%
Disclaimer : Mutual Funds are subject to market risks. Please read the scheme related documents carefully before investing.
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