Difference between Tax Saving and other MFs

POSTED BY Sunny ON September 29, 2010 12:38 pm COMMENTS (4)

Hi ,

Just want to know, what is the difference between Tax saving MFs and all other Mfs (e.g. Diversified).

I am not asking about the tax exemption we get on Tax saving funds.

I want to know what makes a fund a tax saving fund. What is the different investment stategy (may be fund allocation in diff securities) they need to apply in comparision with other funds.

And if any link available which gives fund allocation strategy difference between all the funds, Please provide.

4 replies on this article “Difference between Tax Saving and other MFs”

  1. bharat shah says:

    strategically they are longer term investments, where the fund manager is not exposed to sudden redemption pressure, so he can better plan the fund.

  2. Sunny says:

    Thanks.

    Doesn’t that imply that ELSS should give higher return than other funds?

    Which isn’t the case I believe.

    1. In long-term it should. But again, it depends upon the stock selection and entry & exit time of fund manager.

      The fund-manager of ICICI Pru AMC said in one of his interview on CNBC TV-18 in 2009, that “we’re not God, we can not predict future.”. After all, they’re also human being.

      I remember some figures of 2006, some tax-saving schemes gave more return in that period (2004-2007) as compared to most of the open-ended schemes.

      MoneySavingsHelp

  3. The main difference is the strategy of fund manager. In normal open-ended schemes, fund manager has to fulfill all redemption as there is no lock-in. So, he will put aside some cash, which he will not invest, PLUS he can not bet on companies which can deliver more return in 2-3 years of time.

    On the other hand, a fund manager of ELSS, can invest upto 100% as there is no redemption because of lock-in period. Also, he can choose companies who can give return over a period of time. Generally, strong mid-cap or small-cap.

    Hope it will help you.
    MoneySavingsHelp

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