Tax-Saving: En route Mutual Funds

Q. What are the various tax-saving options offered by mutual funds? A. There are two types of tax-saving funds, equity-linked savings schemes (ELSS) and pension funds. ELSS schemes are basically diversified equity schemes, which have a three-year lock-in. Investments here—subject to a maximum of Rs 10,000—receive a tax rebate of 0 to 20 per cent depending on the income slab. As these are equity instruments they have the maximum risk-return potential among all asset classes. What this means is that return has a propensity to vary with great intensity. Although an average tax-saving mutual fund delivered 16.36 per cent in 2002, the range of returns was extreme. Thus, in that year, the best tax-saving fund delivered 42.61 per c

This article was originally published on March 15, 2003.