Apart from the tax deduction ELSS funds also have the potential of delivering good long-term returns
13-Sep-2013 •Research Desk
I want to start investing in mutual funds via SIP in of Rs 1,000 in two schemes. I want to invest to save taxes and generate capital by continuously investing for 5-10 years. Please help me choose the right schemes among ICICI Pru Equity Volatility Advantage Regular, HDFC Top 200 and HDFC Childrens Gift-Inv.
If you want to get tax deduction under 80C, you will have to invest in tax saving funds. Among the mentioned funds ICICI Pru Equity Volatility Advantage Regular and HDFC Childrens Gift-Inv are balanced funds, and HDFC Top 200 is an equity diversified fund. Although gains from these funds are tax-free after a year, the amount invested in these funds is taxable. These funds are diversified as they invest in stocks of varying capitalisation and have the potential of delivering good long-term returns, they are not a part of the tax-saving universe.
Investments made in tax saving funds or Equity Linked Saving Schemes (ELSS) get tax deductions up to Rs 1 lakh in a financial year under Section 80C. Investments in these funds have a lock-in of three-years. One of the merits of investing in an ELSS fund is that it instills investment discipline among equity investors. The 3-year lock-in ensures this tax saving option is not treated as an opportunity to make a quick exit the moment one sees profits.
Apart from the tax deduction and lock-in of three-years, these funds are diversified equity funds investing in stocks of varying capitalisation. They also have the potential of delivering good long-term returns. Choose a well rated fund and you are good to go.