Can tax saving mutual funds help you to achieve your long-term financial goals?

Each one of usis unique in their way and so are our financial objectives and goals. While one may want to save for a wedding, another might want to save for retirement, or to take an international trip. These desires lay the foundation of our investment goals as they help determine the financial planning needed to attain them.You can consider to invest in mutual funds to achieve your desired goals in a particular time frame by utilising mutual fund benefits to their core.

Thanks to the levied tax on mutual funds, most fund managers advise their clients to link their investments to tax-saving investments or Equity-Linked Savings Schemes (ELSS) funds. These investments could be made towards your long-term financial goals such as retirement.

Linking your ELSS investments to your long-term goals aids you to focus on your goals rather than fretting over the performance of the unpredictable and volatile equity markets. Though ELSS schemes come with a mandatory lock-in period of 3 years, mutual fund experts recommend investing post the lock-in period too.

Often, people mistakenly believe that they need to sell their investments after the mandatory lock-in period. Experts believe that one should stay invested in ELSS funds for a horizon of at least 5-7 years, provided that the scheme is performing well in the market.

Any investor with a long-term investment goal and high-risk appetite can consider investing in an ELSS scheme. This mutual fund investment scheme offers the benefit of capital appreciation as well as a way to avoid taxation on mutual funds. Under Section 80C of the Income Tax Act, 1961, investors can claim tax deductions up to Rs1.5 lakh each year towards investments made in ELSS mutual funds. This means an investor can save up to Rs46,800 each year by investing in ELSS schemes, which results in more savings on your tax and, ultimately, more savings for you.

However, a lot of investors argue that it is better to invest in a traditional equity mutual fund investment scheme with a crystal clear mandate to achieve your long-term financial objectives and goals. This raises the question – “Can you bank on ELSS funds to achieve your long-term investment goals?”“Are ELSS funds as good as contemporary mutual fund schemes when you take factors like wealth creation and performance under consideration?”

Since ELSS funds do not follow any specific mandate to invest in a particular market cap, we can compare them to the multi-cap category as both these funds supportthe multi-cap style of investing. When you comparethe performance of tax-saving mutual funds, i.e. ELSS funds, to multi-cap schemes, you would notice that both these funds perform along similar lines. Hence, you can be assured that Equity-Linked Savings Schemes indeed help you meet your long-term financial goals just like any other mutual fund scheme.

Whether you are looking at capital appreciation or just want a financial instrument that helps you save on income tax, long-term investments into ELSS funds can aid you in both your quests. Investing in ELSS mutual funds is like hitting two birds with one stone. Happy Investing!

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