Advertisement

Help
You are here: Rediff Home » India » Business » Personal Finance » Manage your Money
Search:  Rediff.com The Web
Advertisement
   Discuss   |      Email   |      Print | Get latest news on your desktop

The top tax-saving funds!
 
 · My Portfolio  · Live market report  · MF Selector  · Broker tips
Get Business updates:What's this?
Advertisement
October 21, 2005 07:30 IST

In our view, investing in an instrument like a tax-saving fund with the sole purpose of saving tax is not a smart move. In the long term, it could be these very investments (to which most people give little thought) that make a significant difference to your finances.

So, this year, before you start the annual ritual of tax-saving, be sure what you are setting out to achieve and then invest accordingly.

Some of these aspects, have been discussed by us in our recent research note: Tax planning: Research is the key!

Tax-saving funds are a key part of any portfolio that is designed for the Rs 100,000 investible limit as defined under Section 80C. These funds are basically equity schemes and therefore carry high risk; unlike a PPF or a NSC where your investment grows at a steady pace, with equity funds you risk losing your capital, let alone not earning a return.

Leading tax-saving funds
NAV (Rs)Net Assets
(Rs m)
1-Yr
(%)
3-Yr
(%)
5-Yr
(%)
Std. Dev.
(%)
Sharpe Ratio
(%)
MAGNUM TAX GAIN 45.33 2,379 124.886.930.38.96 0.62
PRU ICICI [Get Quote] TAX PLAN 65.51 1,553 94.277.641.710.06 0.43
HDFC [Get Quote] TAX SAVER 95.62 1,306 97.876.242.48.12 0.55
HDFC LT ADVANTAGE64.66 2,210 66.673.1-8.29 0.51
BIRLA EQUITY PLAN46.88 629 62.869.729.58.03 0.40
TATA TAX SAVING 42.25 846 65.064.332.57.98 0.43
SUNDARAM TAX SAVER 17.27 239 70.961.332.78.63 0.41
FRANKLIN INDIA TAXSHIELD85.03 1,729 55.055.829.56.91 0.45
PRINCIPAL TAX SAVINGS47.96 1,133 55.554.630.46.99 0.43
(Source: Credence Analytics. NAV data as on Oct 17, 2005. Growth over 1-Yr is compounded annualised)
(The Sharpe Ratio is a measure of the returns offered by the fund vis-�-vis those offered by a risk-free instrument) (Standard deviation highlights the element of risk associated with the fund.)

However, financial planners like us hold the view that over a 3 � 5 year period equity funds stand to generate a much better tax-adjusted return as compared to other tax-saving instruments. The underlying assumption we make:

One, the funds that you have chosen are 'well managed', and

Two, you have invested in the stock markets at a time when there are 'investing opportunities' (reasonable valuations) available. In this case however, you can dilute the risk of timing the market by going in for a Systematic Investment Plan (SIP).

So, how do you select the fund that is "well managed"?

The best way of course is to ask your investment advisor. The underlying assumption here is that your investment advisor is in a position to offer you timely, in-depth and credible research (Read the latest FundSelect report from Personalfn -- HDFC Tax Saver).

The other option is more time consuming: do your own research. In most instances this is not really an option because investors like you either do not have the time or the access to credible sources of information/data.

Once you have evaluated a fund on these parameters, you will be in a position to select what suits your requirement best.

Investing to save tax? Personalfn can help you. To benefit from ideas that work in your interest, click here!



More Personal Finance
 Email  |    Print   |   Get latest news on your desktop

© 2008 Rediff.com India Limited. All Rights Reserved. Disclaimer | Feedback