Mutual funds Investments: Tax exemptions

Mutual Funds, a familiar word in the world of investing, pooling money from various investors and investing that money in stock, assets, etc. if you are a beginner in the world of investment and financing then it can be tricky for you to answer the basic question like why you should invest in mutual funds? What are the tax benefits you get from investing in mutual funds? What are the pros and cons of it?

It’s completely fine to get overwhelmed with all of these questions but you don’t need to worry about that, we are here to provide you with clear and concise information that can help you to make a better financial decision.

Tax benefits from mutual investment

What if I tell you that you can get Rs 1.5 lakh of income tax paid back to your bank account which you earlier used to give away as free charity to the government, well if you want to know you are at the right place.

Mutual funds can help you save income tax from your taxable income if you put your money in certain investments. It is provided under section 80 C of the income tax act 1961 which states that you can claim a deduction of Rs 1.5 lakh your total income.

Equity Linked Savings Scheme (ELSS) is another term used for Mutual funds. when you invest your money in ELSS you need to hold your money for a minimum period of 3 years, you can extend this limit and can wait longer for more benefits. You can invest up to Rs 1.5 lakh and can get a tax deduction of up to Rs 1.5 lakh as per under the income tax act 1961.

 Advantages of mutual funds

       1. Capital appreciation and tax benefits.

You can invest in mutual funds and can reap the dual benefits of getting interested in your money hence increasing your capital and also getting the tax benefits and deductions that you were unheard of earlier.

       2. Shortest lock-in period

Mutual funds give you the option of holding your money for a small period as compared to other term deposits like FD. A minimum period of three years is required while in other investments like PPF and FD minimum lock-in period is 15years and 5 years respectively.

       3. Good returns

Mutual funds are linked to the equity market and that’s why they can yield better returns than other investments, if these same investments are extended more than the lock in -period it can yield a far better result than that.

       4. High risk-appetite, high return

Your risk appetite plays a major role in determining your investment strategy, how much risk you can take in terms of investment that will eventually be the degree of return you can expect from the investment. Higher the risk, the higher the return.

Just like a sword has two sides, its pros, and cons, mutual funds also got their fair share of disadvantages that are listed below

Disadvantages of mutual funds

1 Lack of control over the money

Since your money is not in your hand it’s going to get managed by the mutual fund house hence you lack total control over your money, but that comes with complete transparency of where your money is being invested which comes under your portfolio which includes dividends payout, expense ratio, etc.

2 Hidden cost

Mutual funds come with its hidden cost since your money is being controlled by investors they need to get paid for that, not just that hidden cost includes advertising costs, administrative expenditure, etc

3 Misuse by management

Since you don’t have control of money in your hand, it can get misused by the management.