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Short-lived ELSS Funds

Tax-planning funds will lose their benefit once the DTC comes into effect from April 2012…

I am interested in investing in ELSS funds to save taxes and also get good returns and have shortlisted Canara Robecco Equity Tax Saver. But I am not sure to go ahead and invest ELSS or a Tax saving fixed deposit because when the DTC comes into effect from April 2012; will not the charm of ELSS go away? Investors in ELSS will also exit impacting the NAV of the funds and returns in it. Is it not safe to invest in bank fixed deposits?
- Sai Krishna

Your concerns are valid that tax planning funds will lose the charm once the DTC comes into effect from April 2012. However, investments made in these funds till March 2012 will enjoy tax benefits with the applicable three year lock-in. Moreover, the size of a fund has no clear or direct bearing on its performance and there are several funds that perform exceptionally well despite their small AUM. While it is safe to park funds in a 5-year fixed deposit to enjoy tax benefits, remember that the lock-in is two years more than what is applicable to tax planning funds with guaranteed returns. If you are looking for equity exposure with prospects of good returns and tax benefits, tax planning funds are a better option than bank fixed deposit.

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