Which Mutual Fund Schemes are eligible for tax deduction under section 80C?

Mutual Funds Schemes which give tax deduction under section 80C are:


1. ELSS Fund (Equity Linked Savings Schemes)
2. Mutual Fund Pension Plans

 
Equity Linked Savings Scheme  

ELSS fund (Equity Linked Savings Scheme), i.e., a mutual fund scheme, where tax deduction of up to 1 lakh (per financial year) from total income is available under Section 80C of the Income Tax Act, 1961

The ELSS Scheme is locked in for 3 years. Lock-in for three years prevents unnecessary withdrawals and allows your money to grow over a period of time.

Also refer
Tax Treatment for Equity Linked Savings Scheme (ELSS)

Tax Saving Scheme Performance

Source: http://nseindia.moneycontrol.com

2. Mutual Fund Pension Plans

The pension funds offered by mutual fund houses rarely get a mention for deduction under section 80c of income tax act.

Mutual Fund Pension Plans funds are debt-oriented tax savings funds and most neglected investment option – due to lack of awareness.

 Mutual Fund Pension Plan schemes get tax benefit (up to Rs1 lakh) as a Notified Pension Fund U/S 80C of the Income Tax Act, 1961, subject to the fund being notified by the central government under Section 80C(2)(xiiic) of the Income Tax Act, 1961. 

 Investment in Mutual fund Pension Plans is locked in for 3 years and exit load will also be charged if one exit before the age of 58 years (subject to lock in period of 3 years).

The available mutual fund pension fund are

1. Templeton India Pension Plan
2. UTI-Retirement Benefit Pension Fund

Source: http://www.moneycontrol.com/mutual-funds/compare-funds/All

Also refer

I am not able to redeem all units in ELSS Scheme?

 Explain Lock in Period in ELSS Mutual funds

Tax Treatment for Equity Linked Savings Scheme (ELSS)

Equity Linked Saving Scheme is an open-ended equity growth scheme that is offered by mutual funds in line with existing ELSS guidelines. The investments under this type of scheme are subject to a lock-in period of 3 years and, as per the Finance Act 2005, are allowed the benefit of income deduction up to Rs. 1,00,000 under Sec 80C of Income Tax ACT . 

Currently, ELSS comes under "EEE"(Exempt, Exempt, Exempt) method of taxation  — wherein it is exempted at the points of investment, in the entire tenure of the investment and as well at the time of withdrawal.

     ELSS = Tax Benefits + Long Term Capital Appreciation

Also Refer

Which Mutual Fund Schemes are eligible for tax deduction under section 80C?

How:

1. When you make investment in ELSS Fund

 Your taxable income is reduced by the amount of investment made subject to a maximum investment of Rs. 100,000,means you get tax deduction under section 80C of income tax act.

2. When you earn income in the form of Dividend 

Dividends received from ELSS funds are also exempt from tax, as  ELSS Funds are mainly Equity Schemes, so there is no dividend distribution tax, so dividend is tax free in the hands of investors.

3. When you Redeem ELSS mutual fund units- Tax Treatment on Maturity of Investment in ELSS Fund

AS you know ELSS Funds are locked in for three years, so after three year when you sell ELSS units, they are considered as Long Term investment and currently long term capital gains are tax free.

Also refer

Is the dividend re-investment in a Tax Saver fund also subject to a lock-in period of 3 years?

 I am not able to redeem all units in ELSS Scheme?

 Explain Lock in Period in ELSS Mutual funds

I am not able to redeem all units in ELSS Scheme??

Query of Blog Reader

I have invested in  SIP in Franklin India Tax Shield Fund Dividend Reinvestment option, Now i want to redeem all units, but i am unable to redeem my complete units after three years as fund house says that the units are under Lock in Period? why is this So? Please help to solve this query.

   

As you mentioned above that you invested in Franklin India Tax Shield Fund.Franklin India Tax Shield Fund is ELSS Fund (Equity Linked Savings Scheme).

Investment made under Franklin India Tax Shied qualify for tax benefit under section 80C of income tax act and all subscription in Franklin India Tax Shield are Subject to lock in period of three years from the date of allotment and unit holder can't reedem, transfer, assign or pledge units during the period.

When an investment is made in a tax-saving ELSS scheme through SIP, each SIP instalment is treated as a fresh investment and the units are locked for three years, as per the guidelines governing ELSS. Each SIP investment has to complete the compulsory three-year lock-in. 

 

Same rule applies to dividend which is reinvested, it is also considered as Fresh Purchase being made by you.

So, you can't reedem all units, but only which completed 3 years, But as you chosen dividend reinvestment that also results in fresh purchase and lock in,  you can avoid that by changing the dividend option.

The best option for this is to apply for Change in dividend option from Dividend Reinvestment to Dividend Payout. For this you have to send a simple signed written request with your Folio(Account Details).

If you have online access to your Franklin Investment, the option to change is also available under Profile.

 You can also Refer this How lock in works in ELSS Funds...

Explain Lock in Period if investment is in ELSS Funds Through SIP (Systematic Investment Plan)

Form for change of Dividend option from Dividend reinvestment to dividend payout, (use switch option)

Infact they would have provided option of change of Dividend, but switch request will also get accepted...(means switch from Franklin India Tax shield Dividend Reinvestment to Franklin India Tax shield Dividend Payout)