Tax advantage is not the only benefit that an investor can reap by making an investment in a Tax Advantage Fund. Of course, investments in these funds are eligible for deduction from taxable income to the maximum extent of Rs.1,50,000/- in any financial year in terms of Section 80C of the Income Tax Act, 1961. These funds are also referred to as Equity Linked Savings Scheme.
The units purchased in these funds enjoy good liquidity once the lock in period of 3 years has ended. An added advantage is that such funds can also be aligned to fulfill medium and long term financial goals of investors.
How to invest
The best way to invest in these funds is through the Systematic Investment Plan (SIP) route. Tax planning at the beginning of the year would help in starting a SIP in a Tax Advantage Fund well in time. Thereby, the investor would enjoy the benefit of averaging of the cost of units purchased.
After 3 years
Tax Advantage Funds are equity oriented funds. After the lock-in period of 3 years, redemption is an option and not a compulsion. The performance of the fund should be reviewed and, if its performance is good, the investment could be continued.