While investing in mutual fund SIP you may think that you will get tax saving in your mutual fund SIP whether it is an equity fund or debt fund.
First of all let’s be very clear that only ELSS category of equity mutual fund give tax benefit to the user and not any other mutual fund category, be it equity or debt.
Coming to
Mutual fund is a vehicle of investment just like PPF NSE recurring deposit etc.
How does Mutual Fund works
Mutual Fund Company floats/bring a fund so that company can bring business to earn fund management charges. Although this charge is very small but as the AUM (asset/money under management) increases, this small percentage gives them good amount of money.
Mutual Fund offers benefit to investor also as fund gives them good return along with diversification and expert management.
Ways to invest in Mutual Funds
There are two ways to invest in a mutual fund.
- lump sum amount
- Systematic Investment Plan (SIP )
SIP means you can invest your money periodically this can be monthly, bi monthly, quarterly or yearly. Different fund houses give different options for SIP payments.
Often people think, that they will get text benefit for their all mutual fund investment under section 80c but this is not true for all Mutual Funds.
https://www.youtube.com/watch?v=To6sIpWF54Y
Facts associated with ELSS Funds
Only ELSS category of equity mutual fund gives your text benefit under section 80c up to 1.5 Lakh in a year and in this option you can invest as lump sum or via SIP in other mutual funds and same is true for ELSS category of funds also.
ELSS or Equity Linked Saving Scheme has lock in of 3 year for each payment.
Whatever amount you are investing each month or each time has a lock in of 3 years. Suppose you started a SIP in tax saving ELSS category , the maturity dates will be as followed.
| Investment Date | Lock in period | Redemption date |
| 1 Jan 2019 | 3 years | After 1 Jan 2022 |
| 1 Feb 2019 | 3 years | After 1 Feb 2022 |
Table of Contents
Benefits of SIP account in tax saving?
1. Your money is saved in no time.
Initially when you start SIP account at that time you may feel that you are investing some amount but later on you will completely forget it and enjoy.
2. Does not burn a hole in your pocket:
You may feel the punch or compulsion save in one shot. But small amount deducting from your bank account may not pinch you. You get used to it after a while.
3. Disciplined Investment:
It created a disciplinary action to save tax and saves you from last moment hustle bustle.
4. Saves you from last moment inappropriate investment:
Tax saving through SIP account also saves you from last moment purchase of unwanted product or low yield product.
5. High Yield:
ELSS investment for tax saving purpose offers you dual advantage of tax saving along with high return.
6. Least lock in Period:
Tax saving SIP account has least lock in period of 3 year only while other instrument which have lock in of 5 year or more.
7. Automatic Deduction:
Your money gets deducted each time automatically when
you set up a SIP account.
So, practically it saves a lot of time and saves from unnecessary tension.
8. Ownership:
It also gives you ownership of your money. You can stop or close your SIP account any time subject to 3 year lock in time.
9. Create Wealth in no time:
As you get high inflation linked return in long run (more than 5-10 year), it creates wealth in no time.
10. Diversification, Professional Management:
These are some of the inbuilt benefits which you enjoy with your SIP account. How small amount you invest in but you get professional management of your money.
Conclusion:
There are many benefits of using SIP account for tax benefit.
It saves from choosing in appropriate tax saving investment for you.
Gives you in built diversification, do not burn a hole in your pocket, professional management and high return which is the core of any investment.
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