What Makes Equity Linked Saving Schemes A Better Option Than Other Saving Instruments?

The answer is really very simple. When you invest in ELSS mutual funds, you not only save the amount permissible by the government, you also stand to gain from it, because of the high rate of return.

There are, of course, many reasons why you should go the ELSS way.

• The returns are really very good – the year ending 2005 saw ELSS as the best performing in the mutual fund category, showing returns of nearly 60%. In fact, a number of funds have appreciated by more than 80% in their three-year period. However, though in the past few years things have not been so good due to the economic downturn and recession effects, remember equities are long term investments that yield better in the long run ( a span of 10-12 yrs)
• These funds have a lock-in period of three years, which prevents you from unnecessary withdrawals and spending and helps earn a return over time. However, remember to stay invested for longer periods of time to the tune of 10-12 years to reap the best of returns.
• Also, the lock in gives fund managers the freedom to take sector and stock bets, which they are not able to do in the regular equity schemes.
• The dividends you earn will be tax free.
• When you sell the units of these funds, you can avail of the long-term capital gain for which there is no tax. If you sell after one year, you pay no tax. 

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Invest in Tax Saver Mutual Funds

Fidelity Tax Advantage - Very Good Tax Saving Mutual Fund

This is one of the two tax saving funds (out of 37) fall in the large-cap space. Its highly investors better than its peers during market down turns. Since its launch, of the total of eight quarters in which its category has been in the red, the fund outperformed its peers in all these. On the flip side, one has to deal with middling performance during market run-ups.

The fund has no restrictions in term so market-cap, sector or thematic bias. The focus is on bottom-up stock picking. However, the portfolio isbiasedtowardslarge-capsandclearlytowardsfinancialservices.Thedecision to buy or sell a stock is made on the basis of the fund manager's understanding of the growth outlook, fundamentals and valuations.
 
Fundmanager, Sandeep Kothari goes by the balance sheet more than what the market is chasing. So, not surprisingly 17 of his holdings have been in the portfolio almost since inception. Despite a large-cap bias, the portfolio is highly diversified. A part from Reliance Industries, allocation to a single stock has rarely exceeded six per cent of the portfolio. However, the fund takes numeroussmallbets.InDecember2010,as manyas28stocksaccountedforlessthan one per cent of the funds portfolio. The large-cap bias does not make it a very exciting offering. It does give stability but the concentrated sector bets, could hinder performance if they do not deliver.

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Invest in Tax Saver Mutual Funds