Can Axis Bluechip Fund's Direct Plan Growth Be Considered for 80C Tax Savings?

Direct questions about tax deductions in mutual funds are always top of mind for investors. The popular belief is that every mutual fund can be used for tax savings under section 80C, but this is not entirely accurate. Not all mutual fund schemes are eligible for tax deductions, and only those that are classified as Equity-Linked Savings Schemes (ELSS) are allowed. Understanding the specific requirements and restrictions can help investors make more informed choices. Let's explore this topic in detail and demystify some common misconceptions.

Understanding the Basics of 80C Tax Savings

Investing in certain types of mutual funds is a popular way to claim deductions under the 80C section of the Income Tax Act, 1961. These designated schemes are known as Equity-Linked Savings Schemes (ELSS). The primary purpose of ELSS funds is to provide tax benefits while also offering the potential for long-term capital appreciation. Investors should be aware that not every mutual fund scheme qualifies for such tax benefits. Therefore, it is crucial to understand which funds can be used for tax deductions.

Axis Bluechip Fund: Not An ELSS

Axis Bluechip Fund is a well-known direct plan scheme that focuses on large-cap stocks. However, it is important to note that this fund is not classified as an ELSS scheme. As Sujit Bangar, the founder of TaxBuddy and FinBingo, explains:

"Axis Bluechip fund is not ELSS. So, it can’t be considered as a tax-saving fund."

This highlights a key point: investors should not assume that all direct plans or even all equity funds can be used for tax savings. It is essential to verify the scheme classification and guidelines provided by the tax authorities.

Investment in ELSS Schemes

For investors seeking to claim tax deductions under section 80C, it is crucial to invest in ELSS funds specifically. These schemes differ from other mutual funds in several important ways:

Mandatory Lock-in Period: ELSS funds have a mandatory lock-in period of 3 years. This means that the investments made in these schemes cannot be withdrawn until at least 3 years have passed from the date of investment. Specific Eligibility: Only mutual fund schemes that are specifically designated as ELSS by the mutual fund company and the tax authorities can be claimed for tax deductions.

Investing in the AxIs Long-Term Equity Fund can be a viable alternative. Unlike the more focused Axis Bluechip Fund, the Long-Term Equity Fund is designed to be an ELSS scheme, meeting the criteria set by the Income Tax Department. This makes it a better fit for investors seeking to claim tax deductions.

Both the funds have demonstrated similar performance due to their comparable investment strategies. The portfolio overlap of 56% indicates that they share a significant number of common stocks, making it easier for investors to transition between the two and still benefit from the tax-saving provisions.

Conclusion

In conclusion, the eligibility of a mutual fund for tax deductions under section 80C depends on whether it is classified as an ELSS scheme. Axis Bluechip Fund, while a solid investment option, does not qualify for these tax benefits. Investing in an ELSS scheme, as exemplified by the Axis Long-Term Equity Fund, is the way to go for those seeking to capitalize on the tax-saving provisions of section 80C. It is always advisable for investors to consult with financial experts or the relevant tax authorities to ensure that their investments meet the necessary criteria.