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Tax saving mutual funds for a new investor

I am 28 years old, and I work in an MNC. I would like to go for any tax saving plan. I am a new investor. I don't want to take much risk. Please help.
- Geeta Mishra

Tax saving mutual funds or Equity Linked Saving Funds (ELSS) qualify tax deductions of up to Rs 1.5 lakh under Section 80C of the Income Tax Act. These schemes come with high risk as they invest most of their corpus in stocks. They mostly follow a multi cap investment strategy. That means, these schemes invest across market capitalisations and sectors based on the outlook of the mutual fund manager. So, you should invest in these schemes only if you have a moderate risk profile.

Like all tax saving schemes under Section 80C, ELSS funds also come with a mandatory lock-in period. Though ELSS funds have a mandatory lock-in period of only three years, you should invest in them with an investment horizon of at least five to seven years. Equity or stocks are a risky investment option in the short term, but they have the potential to offer superior returns than other asset classes over a long period.

Finally, if you are ready to take risk and have a long investment horizon, you may invest in tax saving mutual fund schemes to save taxes under Section 80C. If you do not have the necessary risk appetite, you may stick to five-year tax-saving deposits from banks or other government-sponsored schemes like Public Provident Fund, National Saving Certificate, and so on.

Here are our recommended tax saving schemes: Best ELSS funds to invest in 2020
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