So, here you are with your cup of coffee skimming through articles on The Village Banter. You may even have a potli bag next to you in which you have saved every single penny that will grow along with your little ones? Well, well, instead of keeping the money that close to you, let me walk you through mutual funds!!
Are you a first-time mutual fund investor who is yet to get to grips with what mutual fund investing is all about!
Don’t worry you are not alone.
What exactly are Mutual Funds?
Consider it as your piggy bank where you put all or some of your saved money, and you can have multiple such piggy banks.
Mutual Funds are a straightforward way to manage your money with the help of Asset Management Companies like a bank, for example.
How they work is that they pool money from the investors and invest in various schemes like equity, government bonds, ETFs, gold, etc. depending upon their schemes.
So what is the point here? The point is if equity is down, the other sectors may take care of the growth of your money.
I hope I can see a small smile with a sigh of relief now.
Let us sit down and talk. Let me list a few of the Mutual Funds that you can look forward to in 2021 which have got tax benefits as well.
What are the types of Mutual Funds?
MF’s are of two types, Open-ended and Close-Ended.
An Open-Ended one is just like your regular shares.
The investor can purchase it from the market and trade it in the market as Abhishek Bachhan did in Guru. Go for it if you are an intra-day trader. To invest in open-ended mutual funds you need to be a bit market-savvy.
Close-ended Mutual Funds are those that you and I think about when we talk about the word MFs. It is for investment purposes and comes with a lock-in period.
Below are the few tax-saving Mutual Funds that you can consider.
IDFC Tax Advantage (ELSS) Fund:
The IDFC Tax Advantage (ELSS) Fund is an open-ended equity-linked savings scheme offered by IDFC Mutual Fund which mainly invests in equity and equity-related instruments. It comes with long-term capital gains. (the money that you may earn from this MF is XX and imagine you spent X amount to purchase it, so your long-term capital gain is XX – X =X, and tax is calculated on that X only).
It aims to create a varied portfolio consisting of stocks of firms that have strong fundamentals and are valued reasonably. It also invests some of its portfolio corpus in the money market and debt securities.
This fund features a 3-year statutory lock-in period.
Aditya Birla Sunlife Tax Relief 96:
Open-ended equity-linked savings scheme (ELSS) with the objective of long-term growth of capital through a portfolio with a target allocation of 80% equity, 20% debt, and money market securities. Investors looking for an investment option that offers benefit under Section 80C of Taxation with a lock-in period of 3 years only. Investors need not wait till March to get the benefit of 80C. In fact, to avoid the need to time the market, investors can invest through SIP. Owing to a 3-year lock-in, the fund manager can build a stable equity portfolio of high-quality stocks having the potential of delivering healthy returns over the investment period.
Tata India Tax Saving Fund:
The Tata India Tax Saving Fund is an open-ended equity-linked savings scheme offered by Tata Mutual Fund.
It invests the maximum portion of its portfolio assets in equity-related instruments of trusted companies to generate long-term capital growth while also offering tax benefits under Section 80C of the Income Tax Act, 1961.
The investment in this scheme will be locked for a statutory period of 3 years.
Aditya Birla Sun Life Tax Plan-Growth:
The Aditya Birla Sun Life Tax Plan Fund is an open-ended equity-linked savings scheme offered by Birla Sun Life Mutual Fund which offers tax deduction benefits under Section 80C of Income Tax Act 1961.
It strives to generate long-term capital growth for the investors through predominantly investing in equity & equity-related securities.
This tax-saving scheme follows a bottom-up approach towards investing and comes with a statutory lock-in period of 3 years.
PS: Bottom-Up Approach: Quite simply, bottom-up investing focuses on individual securities rather than on the overall movements in the securities market or the prospects of particular industries.
The bottom-up approach assumes that individual companies can do well even in an industry that is not performing very well.
This includes becoming familiar with the company’s products and services, its financial stability, and its research reports. Bottom-up investing is likely to provide better returns over longer periods for investors, but at the same time, it might show extreme variations from the market returns. As a result, such investors typically tend to be long-term focused.
L&T Tax Advantage Fund:
The L&T Tax Advantage Fund is an open-ended equity-linked savings scheme offered by L&T Mutual Fund.
The primary aim of the fund is to generate capital growth in the long term for the investors via investments done in a diversified portfolio mainly consisting of equity and equity-related securities in addition to other money market instruments. It comes with a statutory lock-in period of 3 years.
DSP BlackRock Tax Saver Fund:
The DSP BlackRock Tax Saver Fund is an open-ended equity-linked savings scheme offered by DSP BlackRock Mutual Fund.
It definitely allows the investors to enjoy the double benefit of long-term wealth creation as well as tax deduction under 80C.
It aims at generating capital appreciation over a medium to a long period via investment done in a diversified portfolio of equity and equity-linked instruments of corporates.
Axis Long Term Equity Fund:
The Axis Long Term Equity Fund is an open-ended equity-linked savings scheme offered by Axis Mutual Fund. It offers tax benefits to the investors up to the limits specified under Section 80C.
Needless to say that the statutory lock-in period is for 3 years. The investments are mainly in equity and equity-related instruments of companies.
Kotak Tax Saver Fund:
The Kotak Tax Saver fund is an open-ended equity-linked savings scheme offered by Kotak Mahindra Mutual Fund featuring a statutory lock-in period of 3 years. The aim of the scheme is to generate capital appreciation for investors on a long-term basis. They invest in a diversified portfolio comprising equity and equity-related securities. The capital gains and dividend income under this scheme is completely tax-free.
Invesco India Tax Plan Fund:
The Invesco India Tax Plan Fund is an open-ended equity-linked savings scheme offered by Invesco Mutual Fund.
The main target of this scheme is to offer capital growth to the investors over the long-term through investments.
The investments are diversified and are made in portfolios chiefly consisting of equity and equity-related securities of midcap companies. The fund invests across market capitalisation sectors by using the bottom-up approach. The number of stocks that the fund can invest in is limited to 20 – 50.
HDFC Tax Saver Fund:
The HDFC Tax Saver Fund is an open-ended equity-linked savings scheme offered by HDFC Mutual Fund. The investments made in this fund remain locked for a statutory lock-period of 3 years.
The fund predominantly makes investments in a balanced portfolio of equity and equity-linked securities of mid-cap and large-cap companies to yield capital appreciation for the investors over a long investment period.
ICICI Prudential Long Term Equity Fund: ELSS:
Fund has 98.3% investment in Indian stocks of which 68.27% is in large-cap stocks, 6.93% is in mid-cap stocks, 13.95% in small-cap stocks. Suitable for investors who are looking to invest money for at least 3 years and looking for additional benefits of income tax saving apart from higher returns expectations. At the same time, these investors should also be ready for the possibility of moderate losses in their investments and 3 year lock-in period.
Motilal Oswal Long Term Equity Fund: ELSS:
Fund has 99.8% investment in Indian stocks of which 47.8% is in large-cap stocks, 24.81% is in mid-cap stocks, 12.23% in small-cap stocks. Suitable for Investors who are looking to invest money for at least 3 years and looking for additional benefits of income tax saving apart from higher returns expectations. At the same time, these investors should also be ready for the possibility of moderate losses in their investments and 3 year lock-in period.
Sources: Websites of each Mutual Funds.
The specs of each mutual fund are copied from their respective websites.
The journey into investing in Mutual Funds for a first-timer is no doubt a daunting one, but with a little bit of practice it is a good habit to have to ensure safe returns and an investment for all Single Parents.