How to pick the best tax shield plan

It's that time of the year again, when investors need to invest their money to claim tax benefit under various I-T sections.

With regards to saving tax under Section 88, equity-linked savings schemes (ELSS) can be a good option for investment growth along with tax shelter.

Indeed, with tax benefit remaining capped at an investment of not exceeding Rs 10,000, a systematic investment of the amount every year, can be a viable growth option for an investor.

For fund managers, the lock-in period of three years gives them the necessary confidence and flexibility to look at investments from a long-term perspective and, thus, deliver consistent returns.

A look at the returns posted by the ELSS schemes over three years only confirms the fact. The schemes in this category have delivered an average return of 14.64 per cent compared with 8 per cent posted by the benchmark Sensex.

The top performing funds in this period are Prudential ICICI Tax Plan (30.09 per cent), HDFC Tax Saver (27.39 per cent) and Tata Tax Saving (25 per cent).

The point to emphasise is that investors need to look at a three-year track record of the fund since it can give them an idea of how an investment of Rs 10,000 has performed in the lock-in period, vis-a-vis other comparable tax-savings instruments.

The other aspect that investors need to look into is the size of the fund.

Bigger the fund, the easier for it is to look for suitable investment opportunities in tune with its objectives and thus provide superior returns.

Also a look into the track record of the promoting fund house will help investors arrive at a better-informed decision.

However, as in any mutual funds, they should read the offer document and see the latest fund portfolio carefully before investing.

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