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What is Tax Advantage Fund?

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Tax Advantage Fund

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.

Add Ons

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.

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Randolph Rowe is a professional banker and former General Manager of Small Industries Development Bank of India (SIDBI). He brings with him the wealth of 34 years of all-round experience in the banking sector - comprising 12 years with IDBI and 22 years with SIDBI - which he combines with his flair for writing.

1 COMMENT

  1. This article guides those who are in search of tax saving instruments.however tax saving funds also can be viewed as medium or long term investment option.because generally tax advantage funds are equity linked, which will start earning super returns only after 2 years or more, depending on the arket conditions.The investors should assess the fund manager experience while choosing such funds.

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