Is there any tax benefit on investing in infrastructure funds? The infrastructure funds seem to have a lock-in period of three years. Please let me know the tax benefit on these funds, if any.
-Srividhya
First of all you need to understand the difference between lock-in period and maturity period of a fund. A lock-in period does not allow investors to redeem their units before the completion of the period (which is three-years in case of ELSS funds) but in case of funds having maturity period, redemptions can be made during the close-end tenure on paying some charges (proportionate unamortized initial issue expenses).
Infrastructure funds do not have a lock-in period like ELSS funds and hence do not carry the tax benefit provided by the latter. Closed-end infrastructure funds do have a maturity period though there is no such restriction in an open-end infrastructure fund. Generally close-ended infrastructure funds become open-ended after completion of their maturity period. The tax treatments of these funds are similar to other equity funds (except ELSS).
This article was originally published on November 21, 2008.
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