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Investors are wary of investing in tax-saving mutual funds (equity-linked savings schemes or ELSS in mutual fund parlance) this tax-planning season, say financial advisors. The abysmal performance of these schemes in the past three years and the current higher level of the market are cited as the reasons for investor disinterest

 

According to Value Research, a mutual fund tracking entity, ELSS funds, as a category, have given a mere 0.33% returns in the last three years. With the tax planning season beginning in December, most companies ask their employees to submit investment declarations around this time.

 

Investors can avail of a tax deduction of up to Rs 1 lakh under Section 80C by investing in a host of options like ELSS, tax-saving 5-year bank fixed deposits, the Public Provident Fund (PPF) or National Savings Certificate (NSC), among others.

 

"Investors, who invested in ELSS three years ago, are disappointed with lower returns. Clearly, they are not keen to invest in tax-saving mutual funds again and they prefer to invest in either PPF or tax saving bank deposits," says Abhishek Gupta, certified financial planner, Moat Wealth Advisors. Investors have also become cautious about investing in stocks due to weak economic fundamentals say experts.

 

Since investors have not made money for three years, they have turned risk averse, and want to protect capital. That is the main reason why many investors would flock to PPF or tax-saving bank deposits.

Invest as per asset allocation However, experts frown upon such "random" tax-planning exercise. They argue that investors should consider tax planning as part of their overall financial plan and choose products accordingly. They say picking tax planning instruments on the basis of past performance alone won't help one reach the right conclusions.

 

Make a financial plan based on your earnings, liabilities and goals. This financial plan will tell you how much money would go into various assets like equity, debt or gold. Some part of the equity portion of this plan could go into ELSS. Advocates of ELSS also claim that it is the right time to get into stocks due to attractive valuations.

The Sensex trades at a P/E of 18 times, making valuations attractive and leaving scope for appreciation over a 3-5-year period. Experts also say that investors should also try to find out the details of the product they are investing. For example, consider the case of these disenchanted investors opting for PPF or 5-year bank deposits.

 

Chances are that most of them haven't thought about the different lock-in periods in these options. If you have a time-frame of five years, opt for tax-saving bank deposits. Opt for PPF only if you can wait for 15 years.

 

Sure, you can withdraw from PPF after five years, but for some specific purposes only. Also, you have to keep your PPF account alive by investing a minimum of Rs 500 every year. Currently, a tax-saving deposit in SBI for five years will give you an interest rate of 9%, while PPF gives you 8.7%.

 

However, financial planners suggest you keep tax treatment in mind while making these investments, as interest income is taxed differently. Interest earned from PPF is tax free, whereas interest income from bank FDs and NSCs are taxable. Hence, if you are in the 30% tax bracket, PPF may be a better investment from a tax perspective.

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Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

1. ICICI Prudential Tax Plan Invest Online
2. HDFC TaxSaver Invest Online
3. DSP BlackRock Tax Saver Fund Invest Online
4. Reliance Tax Saver (ELSS) Fund Invest Online
5. Birla Sun Life Tax Relief '96 Invest Online
6. IDFC Tax Advantage (ELSS) Fund Invest Online
7. SBI Magnum Tax Gain Scheme 1993 Invest Online
8. Sundaram Tax Saver Invest Online
9. Edelweiss ELSS Invest Online

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