Post-budget, in FY12-13, will the benefits given under Section 80C to tax-saving funds continue? If not, how would mutual funds treat the existing corpus? Would you advise that the investments that have crossed the lock-in period be redeemed now?
-Ramesh
If the Direct Tax Code (DTC) comes into force, tax-saving funds will no longer have the benefit under Section 80C. If that happens, your investments made in such funds till 31st March 2012 will not be affected in any way. There is absolutely no difference between a tax-saving fund and an open-end equity fund in the way it is being managed, the only difference is the 3-year lock-in period of a tax-saving fund, in return of which you get a tax break under Section 80C. Hence, you should look at your investments that have crossed the lock-in period as a regular equity fund investment. It can be looked at as a slightly privileged fund investment because the fund managers of tax-saving funds have the liberty of managing assets without having to worry about facing redemptions, which has translated into a marginal outperformance.
This article was originally published on February 17, 2012.
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