Interest in these equity schemes is building up also due to the fact that foreign funds have been pouring in since the beginning of January. "The number of application for tax-saving schemes is witnessing a sharp jump. We have always seen similar trend during the January-March period. Salaried people always go in for these kind of schemes. Since the maximum investment limit is Rs 10,000, you will get a tax exemption of Rs 2,000. Hence, if you get a fresh inflow of Rs 1 crore, the number of application would be at least 1,000," said a fund source.

Most of the equity-linked tax-savings schemes (ELSS) have seen sharp appreciation in their NAVs since last week of December. Their NAVs have risen up to 19.47 per cent since December 26. The appreciation in NAVs of ELSSs is, however, mainly due to the three-year lock-in period for investments in these schemes. "Tax savings schemes, more or less, have always given good returns as they face relatively less redemption pressure due to the three-year investment lock-in. This gives the fund manager enough leeway to identify good long-term bets," said a fund manager.

Lot of these funds have investments in old economy stocks, which have seen sharp rise in prices and this also partly explains the appreciation in NAVs of tax saving equity schemes, said another mutual fund source.

While admitting a rise in the number of applications for these schemes, a top official in a leading Delhi-based mutual fund said, "It will be a short-term view if we take the current appreciation in NAVs of these schemes as a sign of performance of these funds."

Investors are also seen re-deploying some of the capital gains after completing three-year lock in these schemes. Said another Delhi-based fund manager, "Currently, there may not be much fresh inflow into these tax saving equity schemes. There is more of redeployment of capital gains. It makes sense for an investor in such schemes to re-invest capital gains where he has already enjoyed a tax exemption on dividends, if any, and will further benefit from Section 88."

Since December 26, 2000, NAVs of UTI Equity Tax Saving Plan-2000, Tata Tax Saving Fund and Prudential ICICI Tax Plan (G) have risen in the range of 16.08-19.47 per cent (see table).

Schemes like BoB ELSS '96 has appreciated by 9.41 per cent, Birla Equity Plan 7.61 per cent, Dundee Taxsaver-G 7.07 per cent and LICMF Tax Plan-G 2.47per cent.