There are many tax benefits you get by investing in Mutual Funds SIPs is one way of doing it in a systematic manner. The benefits are:
- Any equity fund held beyond one year gets a lower tax treatment of 10% on long term gains. This is also only after you cross ₹ 100,000 threshold. This is lesser than the tax bracket of standard income. For this below a 10% slab, the exemption usually means zero tax.
- Debt funds held more than 3 years, enjoy indexation benefit. This means any gains in excess of inflation are taxed at 20% of the excess. For example, if you make 8% on a debt fund and inflation is 7% then after 3 years, you effectively pay only 0.2% as tax which is very low.
- Unlike equity where each transaction is taxed (Securities Transaction Tax), all the investments that you make via mutual funds are exempt from such taxes.
Bonus tip: Invest in such a way that taxes are postponed as long as possible. Naturally bank deposits are not ideal since you pay taxes even on notional gains.
