Sensex, Nifty Lowers: Right time to Buy Tax Saver Mutual Funds?

As the financial year end approaches and the taxman comes calling in addition to the necessity of tax planning for the next year, you might want to consider investing in ELSS or Equity Linked Savings Schemes, otherwise known as Tax Saver Mutual Funds.

Tax Saver Mutual Funds are Tax Exempt at All Stages

Further, ELSS or Tax Saver Mutual Funds come in the category of EEE which is Exempt, Exempt, and exempt, meaning that the three stages of entry, earnings, and exit are all tax exempt or in other words, at all stages, the deposits, the earnings, and the withdrawals are tax exempt. While this facility is provided in the PPF and NSC as well, these have a longer lock in period when compared to the ELSS which typically lock in your investments for a mandatory three years.

Higher Returns at Moderate Risk

Having said that, since ELSS comprise investments in both equity and debt markets, you would be carrying some risk when measured against the PPF and the NSC which are guaranteed by the sovereign authority of the Central Government. Especially when one considers that the extra risk you take when compared to the government guaranteed savings schemes such as PPF (Public Provident Fund) and NSC (National Savings Certificate), is more than made up by the returns from ELSS, you might want to include such investments in your savings mix.

Benefit of Regular Dividends

In addition, the other advantages that ELSS has are in terms of the regular dividend payout as well as consolidated lump sum on maturity which introduces greater flexibility especially for those wishing to have a regular income from their investments. Further, the dividends are tax exempt though you might have to pay some fees for the administrative and other charges that the fund administrators levy.

This is the Right Time to Invest in Tax Saver Mutual Funds

With the recent dip in the market, NAVs (Net Asset Values) of several of the leading ELSS have fallen and hence, this is the time to invest in Tax Saver Mutual Funds. Further, with the market rebounding due to Bullish forecasts, your decision to invest in ELSS would pay off as you would then be making the most of the present correction and subsequent rise. However, do consider the lock in period and compare the historical NAVs to guide you through the process of investing in a Tax Saver Mutual Fund.