4 Things to Remember Before Buying Mutual Funds To Save Taxes

When buying tax saving mutual funds like equity linked savings schemes, ELSS, during the tax saving investment season, keep in mind the following four important factors.

Risks associated with ELSS
Tax saving  equity linked saving schemes (ELSS) invest in the stock market and are subject to stock market turbulence. This could mean large fluctuations in the value of your investments during, and even after the three-year lock-in period and even thereafter.

Liquidity of your investments
Most tax saving investments have a long lock-in period  during which you cannot access your money

ELSS investments have the shortest lock-in period of three years.

Uncertainty of returns
Like all mutual funds, an  ELSS does not offer guaranteed returns. For best returns from an equity fund like an ELSS, you need to stay invested for 8 to 10 years or longer.

Different options with ELSS
An ELSS offers both dividend payout, as well as growth options. Opt for the growth options  for meeting long-term needs, like financing your child’s higher education, for which an ELSS is highly suited. Opt for the dividend option if you need additional income.

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