Tax saving funds are also known as Equity Linked Savings Scheme (ELSS) which helps in diversifying investments in different parts of the market. They are close ended schemes having a tenure of 3 years in India. Investors in tax saving funds are exempted from taxation under Section 80C of Income Tax Act.
Lock-in period - The more time you invest in mutual funds, the better returns you will receive. The lock-in period for Tax saving funds itself is three years.
Tax Benefits - The most important feature of tax saving funds is exemption from taxation. Section 80C of the Income Tax Act states that the investors in tax saving funds are restricted to pay taxes.
Securing wealth - Investing in tax saving funds means securing your money for at least three years. The investor need not to worry about his money as its locked for 3 years.
Financial Planning - Tax saving funds are also an ideal choice for planning long term financial goals. One can invest his money in these funds for long term purposes like retirement planning or children’s education.
No Investment limit - The investors can start investing with the minimum amount of rupees 500.
Dividend and Growth - The investors have an option of investing in dividend or growth. Investing in dividend gives you regular dividend during the lock-in period where as investing in growth will provide you a lump sum amount of money once the lock-in period is over.