The Hindu Business Line : Tata MF plans close-ended tax-saving scheme

The proposed Tata ELSS Fund 2005, with BSE Sensex as its benchmark, will try to provide medium- to long-term capital gains along with tax benefits. It will have a three-year lock-in period.

Up to 100 per cent of the assets may be allocated to equity and equity-related instruments, while a maximum 20 per cent may be invested during normal circumstances in debt and money market instruments.

For investors seeking tax benefits, investments in the fund will qualify for deductions from their gross total income up to Rs 1 lakh. Repurchase can be possible any time after the expiry of the compulsory lock-in.

Tata MF's 10-year close-ended structure is a first of sorts, coming as it has after the November 3 notification. The latter, it is pointed out, strikes a somewhat different note when seen against the current crop of tax-saving options.

These are all open-ended in nature, having found definite support from the authorities in recent times, thanks to the newly introduced Section 80C of the Income-Tax Act.

What ELSS notification says

FOR investors seeking tax savings tools, close-ended funds will now firmly set the agenda, MF circles point out while referring to the recent notification on ELSS.

The notification, which mentions that the amount to be invested will be a minimum Rs 500 (and in multiples of Rs 500), refers to plans that must be kept opened for at least one month during fiscal 2005-06 and a minimum three months during subsequent years.

It further requires investments to be kept for a minimum three years from allotment, after the expiry of which a unit holder may redeem his holding. The repurchase price is to be announced one year after the date of allotment and later on a half-yearly basis.

However, after a period of three years from allotment (when repurchase may be allowed), the MF will be required to declare the repurchase price every month or as frequently as may be decided. The notification further mentions that a tax plan will be terminated after 10 years. But if ninety per cent of the units are repurchased before this period, the fund may terminate it.

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