Best methods Investments with tax free options and good returns?

Can you suggest me the best method of investment which has good returns and tax free option.

You can invest in Equity Diversified Mutual fund with growth option for more than one year. As per present law no tax on capital gain

I hope I can help address all three parts of your question -- best method, tax minimization, good returns.

If you're investing, not "trading" (which is more of a short term, active business idea), you're looking at long term results, to grow your wealth to take care of future needs (such as home buying, retirement and leaving assets for your family when you die).

First, getting a "good return": You should not expect to do better than "the market" overall. Some people will do better, some will do worse, and many people who try to pick individual stocks, for example, take more risk than is justified by what they earn on the investments. You can get a good return by holding a mix of mutual funds that are operated with low costs and no fees. These funds buy a broad mix of stocks (and some buy bonds or other assets as well), and over a long period of time, almost no one (including professional money managers) will do better than you will, if you buy and hold a few low-cost, well-diversified funds. By using mutual funds, you have the important benefit of "diversification", that minimizes your risk. Check out Vanguard, a low cost family of mutual funds, at www.vanguard.com

Second, tax minimization: You can put money, each year (currently up to $4,000 annually) into an IRA account, and if you choose what's called a Roth IRA, the investments you make can grow tax-free and (unless you take money out too early) you get to take out all the money eventually without any tax on it. Keep in mind that an IRA is just a type of account that you can open with a broker or a mutual fund, making the same investments (e.g., mutual funds) that you would make in a regular investment account.

Since you might want to invest more than $4,000 in one year, another idea is the use of variable annuities. These are contracts with insurance companies, and allow you to buy a mix of mutual funds, allow them to grow in value with no current tax obligation, and sometime in the future (usually retirement), you "annuitize" the contract -- that is, you exchange the investment value for a lifetime payment of income from the insurance company, based on the value of your account when you annuitize. So, buying a variable annuity is similar in concept to buying yourself a pension that will, when you choose, pay you retirement income for life. One of the reasons these can be a good investment is that, for a cost around 0.5% per year, you can also have an insurance company guarantee that your investments will not go down in value -- they can go up, with the mutual funds, but not go down. That is a pretty cheap cost for "portfolio insurance". Eventually, when you start taking the income, you do pay income tax on the gains, but it is spread out as you receive the income.

Third, best method: As my previous paragraphs described, I think using mutual funds as the investment method, and either an IRA or a variable annuity as the account type or "holding method" give you the "best method" to grow your investments and minimize the tax burden on your income.

I hope this helps!

equity mutual funds from good fund house like Birla MF, HDFC etc. and keep it for a minimum period of one year. all income including dividends, if any, will be tax free