Post-Union Budget 2005-06, tax-saving funds (also referred to as ELSS) have emerged as popular investment avenues for risk-taking investors. The latter now have the option of investing in line with their risk appetite for the purpose of tax-saving (under Section 80C) as well; this is in contrast to the earlier tax regime wherein the upper limit on 'eligible' investments in tax-saving funds was set at Rs 10,000.
Tax-saving funds (due to their equity-oriented nature) are capable of clocking far superior returns vis-ą-vis their assured return counterparts like National Savings Certificate (NSC) and Public Provident Fund (PPF). However investors must appreciate that the risk profile of tax-saving funds tends to be proportionately higher.
Reliance Tax Saver (ELSS) Fund (RTSF) is the latest entrant in the tax-saving funds segment. Flagship diversified equity funds (Reliance Growth Fund and Reliance Equity Fund) from Reliance Mutual Fund have emerged as top performers in their segment across time horizons. However investors should note that these funds are managed aggressively; also they have displayed an opportunistic streak by moving fluidly across market segments (large caps, mid caps) to clock superior growth. RTSF is likely to be a similar (high risk - high return) investment proposition within the tax-saving funds segment.
We recommend that investors first consider adding to their portfolios existing tax-saving funds like HDFC Long Term Advantage (67.92% CAGR over 3-Yr), HDFC Tax Saver (72.30% CAGR over 3-Yr) and Franklin India Taxshield (53.84% CAGR over 3-Yr) that have impressive track records, before investing in RTSF.