Tax planning finally got the attention it deserved when the restrictive Section 88 gave way to the 'free-flowing' Section 80C. Under the revised tax regime, investors now have the option to invest in line with their risk appetite, which is how tax-planning should be done. Moreover, Section 80C is more pervasive, it applies to all investors regardless of the tax brackets (Section 88 benefit was not applicable to investors with gross total income in excess of Rs 500,000).
Of particular interest to the risk-taking investor is the flexibility to invest a lot more in tax-saving funds (ELSS) than the puny Rs 10,000 earlier. Under Section 80C the limit stands revised at Rs 100,000. This means that aggressive investors can allocate a larger share of tax-saving monies to such funds.
In order to appreciate whether Fidelity Tax Advantage Fund (FTAF) is a fit in your tax-saving portfolio, it is important to first consider a few points. Fidelity Fund Management Private Ltd. (the Asset Management Company) launched its first scheme (Fidelity Equity Fund) in March 2005.
Although the asset management company (AMC) is yet to complete a year, it has had exposure to the domestic stock market for over 10 years by virtue of its presence as a FII in India. Over the 9 months since inception Fidelity Equity Fund has performed reasonably well vis-ą-vis peers. Although, a 9-month time frame is not sufficient to gauge the performance of an equity fund, we would nonetheless like to draw the investor's attention towards the fund's well-diversified investment strategy and process-driven approach.
An interesting feature about the NFO is that the AMC will absorb all the initial issue expenses; it will not pass on the cost to the investor, which is the standard industry practice. The same will reflect in the investor's return.
Given Fidelity Mutual Fund's well-defined processes, we recommend that investors consider allocating a portion of their ELSS investments to FTAF. Also since most investors already own equity/tax-saving funds from other AMCs, investing in FTAF will allow them to diversify across a new AMC and benefit from its investment strategy and processes.