Why Tax-Saving Mutual Funds Are Your Best Bet Solution for Retirement

What would call a person who is happy on Monday? Retiree!

Retirement is the golden phase of the life when there is ample time available to pursue hobbies or interests which otherwise take a backseat in the maddening rush of corporate life. While all of us look forward to enjoying the fruits of the hard work and efforts which we put during our working life, money crunch is a situation which can dampen your retirement plans.

Though retirement is the time when you would bid adieu to office politics, and Monday blues, it is also the time when your income would stop. For the bright post-retirement life, it is inevitable to start your retirement planning early.

Retirement is a long-term goal which ideally should revolve around investments which can generate high returns in the long run. And here, comes the tax-saving mutual funds, i.e., ELSS funds which not only generate high returns but also save tax.

Why Should You Invest in Tax-Saving Mutual Funds for Retirement?

1. High Returns: Due to the inflation impact, the value of Rs 100 would be much lower five years down the line than what it is today. Thus, while planning for retirement, it is necessary to anticipate inflationary trends otherwise your returns would be much lower than the inflation and your money would get exhausted much earlier than anticipated.

In the long run, equities as an asset class, have outpaced the other investment options by generating high returns. Hence ELSS funds should be one of the essential products in your retirement portfolio.

Source: The Economic Times

The tax-saving mutual funds can easily beat all other asset classes, including PPF, bank fixed deposits, etc.; over the long run by generating over 12% annualised returns.

2. Shortest lock-in period: Tax-free mutual funds come with a lock-in period of only three years, which is the lowest among all Section 80C investment products (check the following table). Once the lock-in period is over, you can withdraw from those funds which have completed the tenure of three years.

Name of the Investment Lock-in Period
Tax-saving fixed deposits 5 years
NSC 5 years
PPF 15 years
ELSS Funds 3 years
ULIPS 5 years
National Pension Scheme Till the retirement

3. Triple tax benefits: In terms of taxation, ELSS falls under the EEE (exempt-exempt-exempt) category. It is not just the invested amount; even dividends receive along with maturity proceedings are tax-free. Here, only PPF from the family of Section 80C falls under EEE regime. While the interests accrued on tax-saving bank and post office FDs and NSCs are taxable, NPS and pension plans also attract tax at the time of maturity. In case of ULIPs, if the premium amount is more than 10% of the sum insured, the entire maturity proceeding would be taxable as per the applicable tax slab.

4. Instill financial discipline: ELSS funds help you invest regularly (monthly) through Systematic Investment Plan (SIP). The biggest benefit of investing via SIP is that you don’t need to ‘time’ your entry into the market and you can enter the market at any point of time.

Also, as with SIP plans, you are regularly investing your money, you can fetch more units when the prices are low and less number of units when prices are high. The regular investment in ELSS funds would help in curtailing the average cost of the financial asset over the period.

As you can initiate investments via SIP with an amount as small as Rs 500 per month, it allows people from all the financial backgrounds to invest without feeling the pinch of a lump-sum payment.

5. Diversification of funds: ELSS funds give you the much-needed diversification as they invest in equities, and at the same time, the risk is low as there is no direct investment in stock markets. Moreover, within ELSS fund, a fund manager invests in a variety of companies so that the overall risk is low.

6. More returns in the long-run: As due to the power of compounding, you can earn interest even on the ‘earned interest’, it is possible to accumulate a huge corpus over the long run. The higher the share of equities, the greater would be your returns.

Source: The Economic Times (Assumption: Rs 5,000 invested per month for 30 years)

7. High Flexibility: Tax-free mutual funds offer a high-degree of flexibility. You can easily increase or decrease the amount to be invested in ELSS funds as per your needs. So, in your initial years, you can start with a low amount which you can gradually increase as per the rise in your salary. Any windfall or bonus can also be invested in the middle of ELSS tenure.

8. Management of funds by experts: ELSS funds are managed by fund managers who have years of experience and expertise. They pick and make the optimum use of funds to ensure that investments give high returns. It means you are free from keeping an eye on the market conditions.


After working for so many years, you owe yourself a nice and financially secure retirement. The returns generated by ELSS funds are much higher than other conservative investment products in the long run. While giving you exposure to equity and helping you beat the inflation impact, ELSS funds also help you in saving tax. You can secure both your TODAY (by getting tax benefits) and TOMORROW (by enjoying high returns). Isn’t it a good idea?

Featured image credits: Pixabay