Which is the best type of mutual fund that will minimize the income tax. What is ELSS?

I heard ElSS is the mutual fund option for reducing the income tax for a salaried employee. I wanted to know which company's funds are having good returns now?

Equity linked savings scheme

Under section 80, Indians can invest upto Rs 1 lakh in ELSS (Equity Linked Saving Scheme, also commonly known as Tax Saver schemes) funds per year/per individual. The amount invested in a ELSS/Tax Saver scheme is Tax deductible on your tax return.

Now, what is the catch for investing in a ELSS scheme.

(a) Your invested money is LOCKED for a period of 3 years. i.e., Once invested in a Tax Saver fund, your money cannot be taken out for a period of 3 years. But this is a blessing in disguise, because Tax Saver funds generally yield healthy returns during a 3 year period.

(b) Except for the Pension plan funds which usually locks the money until the age of 58 or so, all ELSS schemes invest upto a 100% in equities/stocks. Therefore, inherently investing in a ELSS is risky.

Comparing equity mutual fund and a tax saving one, I would say Tax saving funds generally perform better because there is less pressure on the Tax Saving fund manager to SELL during down markets for redemption to unit holders.

With plain vanilla Equity MFs you could buy them today and dispose of them tomorrow - i.e., there is no time limit for redemption, except for exit loads. However with ELSS MF funds, there is a compulsory 3 YEAR lock in for Equity funds and a mandatory lock in up to the age of 58 years for Pension funds.

Contrary to the popular theories, ELSS funds also comprises of Pension fund, such as Franklin Pension, which does not invest more than 50 to 60% in equities.

stop worrying about income taxes and focus on the main job here -- investing to meet your financial plan.

good returns now in a mutual fund are not indicative of good returns in the long run ... the market is in a slump and leadership frequently changes between rising markets and slumping ones -- and vice versa.

You should think a little about your motives before deciding to make an investment decision based on "minimizing income taxes", because unless you are in the very highest tax bracket, such a strategy makes NO sense whatsoever!

Think about it, would you rather put $100,000 in a fund that gives a taxable 10% yield? Or one that gives a 3% tax-free yield?

You can minimize income tax by investing in a tax-exempt mutual fund (primarily municipal bonds). However, precisely because mutual bonds are tax-exempt and thus attractive to investors, they can be issued at a lower rate of interest (a lower cost to the issuers). So you're paying little/no tax, but you're also getting less return on your money.

Tax-exempt investments are useful for people in fairly high tax brackets.

Your goal should be not to minimize taxes, but to maximize total return after considering taxes - which is not the same thing.

Good luck.

look at http://www.ratekhoj.com/fixeddeposit/tax... from the website http://www.ratekhoj.com for details on ELSS and also a complete list of ELSS mutual funds. you have to use the links to see latest returns etc.

ELSS refers to Equity Linked Saving Scheme. You can save Income Tax, if you invest in these schemes, but the lock in period is 3 yeras if you want to have tax gain benefit.

The following link will give the idea of the return given by DSP-ML and Principal Tax Saving Fund.
Compare them and see for yourself which one suits you (depending on the time you want to remain invested.)

http://www.moneycontrol.com/india/mutual...

Other than the above, you can also visit the following site, which will surely help you in your mutual fund investment

http://www.valueresearchonline.com

Try the FAQ on Income Tax Act from the link below

http://firstappeal.com/view_topic.php?id...