Tax Saving Mutual Fund Basics

September 11, 2014 Posted by admin

There are many ways that you can use to save tax. One of the most lucrative methods though, is by using mutual funds. These are by their very nature bound to give you good returns. When you add the fact that you’ll be getting tax cuts, it’s quite a bit like hitting the jackpot. But you need to make sure that you’re choosing the right tax saving fund. Because there are quite a few tax saver mutual funds in the market. The thing to bear in mind at all times, is that you need to choose a fund that both saves you tax and performs well. This is your criteria; if this doesn’t fit – then you might as well pay the tax and get it over with, because you’ll be losing money either way. Here are something that you should look at, so that you know you can choose that particular fund.

The first thing to check is the net asset value also known as the NAV. Generally, funds have lock in periods, which vary from three to five years. You need to know that a fund has performed well and done so consistently for at least three consecutive years, before you consider actually putting money in it. This way, even though your money is inaccessible to you, you know that it is growing steadily until the lock-in period ends. Keep in mind that you have to look at both bull runs as well as bear markets. Your fund should have performed well – or at least better than its competitors – through ups and downs in the market. Generally funds that survive such ups and downs have a clear and concise investment strategy – and this can be priceless. Look for such things when you’re going through different mutual funds, whether online or in person.

You should be able to understand how much of your money is in stocks in advance. Make sure that the investment does go through as it is supposed to – raise questions if it doesn’t. You’ll know that the manager isn’t going to randomly invest random amounts of money anywhere he or she pleases. You would know the risks you would be taking with your money, and if it isn’t something you’re comfortable with, you can pull out. This is where the volatility of the fund comes in – if you’re not a risk taker, then you might want to avoid equity funds. Keep in mind that your success depends a great deal on your research about any given fund and the fund manager and his or her strategy before you invest.

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