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MUTUAL fund investors have something to cheer about in this Union budget because they will find that this investment route retains its importance in their portfolio. The rollout of the direct taxes code (DTC) has been pushed forward, making the tax saving route of equity linked savings scheme (ELSS) available for investors in the coming financial year also. This, along with the other applicable tax benefits for mutual funds as a whole, should ensure that various schemes remain on the investment radar for most investors.

ELSS funds going forward: Now that the details for the coming year are clear, it is obvious that ELSS funds will continue to be available for investment for the coming year also. This means that the planning for investments allocation to complete the Section 80C benefit of Rs 1 lakh, can be done at this point of time so that the savings and allotment strategy is also planned out carefully.

However, two things remain important for the investor to keep track of.

First of all, they must see when the DTC is introduced, as this will signal the end of the road for ELSS funds. The second thing is the nature of the taxation of the earnings from the funds should also be seen once the DTC is introduced, so that they are able to get an idea about the tax liability that they will incur when the shift actually occurs.

There is also some additional competition that the funds might face from the Rajiv Gandhi Equity Savings Scheme. The nature of the benefits that are proposed in this scheme and the overall situation shows that ELSS retains an edge and, hence, they should look towards making efficient use of the available funds.

A limitation of the new scheme could also be that this is meant for new investors and there is also a limit present for the income for the investors (Rs 10 lakh) who can make use of the scheme. All such restrictions are not present when it comes to the ELSS funds and, hence, these should remain in the forefront of the choice when it comes to tax savings.

Equity funds: Equity-oriented mutual funds still remain very tax-efficient due to the fact that dividends remain tax-free for the investor. At the same time, there is no dividend distribution tax in the hands of the mutual fund, so, there is no indirect impact for the investor too.

The real benefit, however, remains in the field of long-term capital tax gains where this is tax-free for the investors. Investors should continue to use equity-oriented mutual funds for their long term needs to grow capital.

However, there could be tough times ahead for the investors in these funds due to the fact that the equity market situation could remain weak as far as the performance of the funds is concerned in the short term. However, investors need to take a longer timeframe into consideration and continue their investments so that there is a rise of the equity cult in the country. This will provide benefits over the longer term as a lot of the goals of the individual can be achieved using this route.