Equity-linked savings schemes (ELSS) have sprung back into favour after the tax breaks announced in this budget.

ELSS ? an instrument that debuted in 1992 ? and unit-linked insurance policies (Ulips) are the only two equity-related instruments in the bagatelle of investment options that will now be eligible for the Rs 1-lakh tax deduction limit under Section 80C.

Mutual fund houses are quick to see a huge business opportunity in ELSS; they have started giving these funds a makeover and are pushing them with extra vigour.

Back in 1992, the government announced ELSS to encourage participation from middle-class investors in the equity market. Investments up to Rs 10,000 with a lock-in period of three years were entitled for tax rebate under the erstwhile Section 88.

But the Section 80C benefits will now turn the humdrum ELSS into one of the best tax-saving instruments with the added bonus of good returns if the stock market stays firm.

?Brokerage rates for ELSS have nearly doubled,? says Ajay Bagga, chief executive officer of Kotak Mutual Fund, an indication the instrument is turning into a big draw.

?Across the industry, the upfront payments have been increased to around 4 to 4.5 per cent against the earlier rates of around 2.25 per cent. The trail commission (brokerages paid out in order to retain the customers) has increased to around 75 basis points (in some cases to 100 basis points) from the previous 40 basis points,? adds Bagga.

The big question: will ELSS score over Ulips?

?Ulips allow limited exposure; ELSS can invest up to 100 per cent in equity,? said Dhirendra Kumar of Value Research. Thus, an investor with a higher risk appetite can now invest a higher amount in such schemes.

Earlier, the tax rebate was available to individuals whose total income was within Rs 5 lakh. Result: there was only a tepid interest in ELSS. But now that Chidambaram has removed the Rs 5-lakh limit, everyone can benefit from tax deductions under Section 80C.

?Generally, it has been observed that people with higher income have a greater risk appetite, as they have more disposable income. However, earlier these people were outside the purview of the benefit of ELSS. But now such individuals will also be interested in these schemes,? adds Kumar.

Moreover, the quantum of tax saving will also be higher now. Earlier, one could save 15 or 20 per cent of Rs 10,000, based on the total income. Now, one can save up to 30 per cent of Rs 1 lakh, depending on the tax slab that the investor belongs to.

Third, like all equity and equity-based instruments, ELSS has the advantage of being exempt from capital gains tax. In the case of ELSS, short-term capital gains tax is irrelevant since there is a minimum lock-in for three years. And long-term capital gains tax is exempted.

The fourth reason is again a direct consequence of another budget proposal: the removal of section 80L deduction and the proposed introduction of the Exempt Exempt Taxable (EET) system for the fixed income tax saving instruments.

Once the budget proposals are passed, interest received from various fixed income investments, including government securities will be subject to tax, which was earlier allowed as deduction up to Rs 15,000. In sharp contrast, dividends that are declared by equity mutual funds are totally exempt from tax, both at the hands of the mutual fund house and the investor.

Fifth, of all the tax saving instruments, ELSS has the shortest lock-in of three years.

And finally, the phenomenal returns: apart from five-year returns, the tax planning funds have surpassed the diversified equity funds across all investment horizons.

?The fund manager of such a scheme can take more long-term bets and thereby manage the fund more efficiently because of the applicable lock-in period in the fund,? says Bagga.

Agrees Ranjeet S. Mudholkar, chief executive officer of Association of Financial Planners: ?The fund house is assured that the assets under management will stay put for three years. And a calculated turnover in the fund allows the fund manager to take calculated risks.?

Adds A. K. Sridhar, chief investment officer of UTI Mutual Fund, ?We encourage investors to combine a systematic investment plan with ELSS to get the best of both worlds.?