As soon as January comes, a large number of investors suddenly realise that the end of the financial year is also approaching fast. This means, you have till March-end to complete your tax-planning exercise.

If one takes a look at the past year, what would seem more appealing would be the fixed return instruments like National Savings Certificate and Public Provident Fund. After all, at least you are guaranteed a positive return there. The equity markets are in the doldrums and don't look like they will be reviving anytime soon.

But what investors tend to forget is that investing in equity is not a short-term investment. Even though equity has the potential of delivering phenomenally over the short term, the risk of capital erosion is also very high.

To truly benefit from equity, one should have the patience to stick around for at least three years. But the ease of exit makes it virtually impossible for the investor to curb the natural instinct for flight in times of crashes.

One mistake that is made often is offloading of all shares and run whenever the market heads for a downturn. The other is choosing to avoid equity altogether till a recovery is on its way. The truth is one can never really say when the market is going to make a U-turn. If one gets into the market with the intention of hanging on for a while, it will eventually pay off.

The good thing about an Equity Linked Savings Scheme is that it has the lowest lock-in period when compared to the other options under Section 80C. The minimum period of three years ensures that the investor puts in money that he will not need for a while. The other options start at a minimum of five years.

If we look at the ELSS category over the past five years, on an average it has delivered annualised returns of more than 12 per cent. This is much higher than the returns you will get on the other instruments under Section 80C, which will average between 8 and 9 per cent.

The tax implications are also luring. You get a tax benefit when you invest in an ELSS scheme, dividends are tax free and when you sell the units after three years, you pay no tax (long term capital gains tax is nil). This makes it score higher than bank fixed deposits and the NSC. And, in terms of returns and lock-in, it scores over the PPF too.

From a category of 36 funds, we have brought to you four of the best.

Canara Robeco Equity Tax Saver

With an improved performance since 2006, this fund has been building a strong case for itself. In the market fall last year, it has shed the least in its category. The fund's ability to do well in either market conditions has made it one to reckon with. A large-cap focus, high cash allocation and a diverse portfolio is what helped the fund stay afloat. Conservative investors looking for a tax-saving scheme will feel at home here.

Franklin India Taxshield

This fund doesn't do anything exciting, but is good in its simple ways. Its steady approach has translated into a competitive long-term record. During bull runs, it has been a middle-of-the-road performer, but has beaten the category average over the long-term. The fund manager does not chase the performing sectors if he does not believe in them. While its temperate style may dampen returns, its modest volatility should appeal to investors seeking mild mannered large-cap exposure.

Magnum Taxgain

Though no daredevil, this offering does have an adventurous side. The fund manager packs up his portfolio with plenty of stocks, but generally tends to gravitate towards smaller names. However, big players have always been his favourites. Over the past year, he has been gradually moving towards large-caps and has also resorted to debt. Though it was an average performer in 2007, its long-term track record speaks volumes and makes it a worthy pick.

Sundaram Bnp Paribas Taxsaver