Investors who had plumbed for tax-saving funds last year have learnt an important lesson. There is a risk associated with such investments and the returns are not necessarily rewarding.

Tax Saving Schemes	NAV (Rs)	1 week	1 month	1 year	Inception
Magnum Taxgain	20.68	-8.30%	-13.80%	-63.90%	12.20%
Tata Tax Savings	11.55	-4.30%	-4.60%	-58.90%	26.50%
Birla Equity Plan	14.45	-4.70%	-8.40%	-56.40%	25.00%
Pru ICICI Tax (Gr)	12.07	-6.60%	-7.90%	-52.60%	2.80%
Alliance Cap. Tax 1996	58.63	-6.60%	-12.50%	-40.70%	56.10%
Canpep 1993	18.72	-0.90%	-4.80%	-37.80%	13.40%
Sundaram Tax Saver	9.29	-4.00%	-3.60%	-31.80%	-5.70%
K P Tax Shield (Gr)	25.77	-5.00%	-6.20%	-29.20%	68.70%
UTI Equity Tax Savings	12.07	-3.90%	-5.80%	-20.70%	8.20%

4 out of the 9 equity-linked tax saving schemes (ELSS) have slumped by over 50%, the rest have done little better.

ELSS schemes have most of their net assets in equities. For an investor assessing his tax-saving options (under Section 88), ELSS is far more risky than say investment in a public provident fund (PPF), National Saving Scheme, or infrastructure bonds. ELSS has a high-risk, high-return investment profile. However, while risk has been sufficiently high over the last 12 months, returns have been most disappointing. A lot of investors have shied away from ELSS products this year mainly because of their dismal performance in the recent past.

One piece of information that investors need to look is the fund performance since inception. In our sample, all but one ELSS is in the positive since inception (all returns over 12 months are annualised).

ELSS schemes are targeted at the younger set of investors those who still have a large portion of their lives ahead of them and can afford to take on some risk for that extra return. For those who have retired or are nearing retirement, ELSS must be snubbed in favour of safer investments like PPF, NSC or bonds. Take a look at our Tax Corner for more tax-saving options.

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