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Tax saving schemes may revive equity funds

Nilanjan Dey

KOLKATA, Sept. 9

EQUITY-linked savings schemes, the `tax-planners' in mutual fund parlance, are expected to provide this year's only silver lining in the otherwise dark clouds looming over mobilisation figures for equity funds.

Endorsement of tax-saving schemes, according to fund circles, is expected to pick up after the forthcoming festive season, thereby boosting the sale of equity funds to some extent. Inflows into equity products, as is well known, are down to a trickle.

The belief is corroborated by distribution outfits, which have already intensified their sales pitch with regard to the ELSS option. Some of them are busy arming themselves with fresh comparative analyses of returns provided by these funds till last year .

The primary benefit derived by ELSS investors stems from a 20 per cent rebate under Section 88 of the Income-Tax Act. In other words, for an investment limit of Rs 10,000 per annum, an investor is entitled to a saving of Rs 2,000.

The bearish equity scenario has also prompted MFs to sense the added potential of these products. Mr Shailendra Bhandari, who heads Prudential ICICI MF, for instance, feels that tax-planning funds present an attractive investment destination vis-a-vis op tions like infrastructure bonds -- a perception that ``needs to be positioned well among investors'' this year.

Intermediaries, too, agree on this count, saying that tax schemes emerge as an alternative for those who want to save taxes and also get higher potential returns. They further underline the fact that many of the schemes have a low minimum investment crit erion (Rs 500).

The ELSS comparative charts present an assortment of schemes pitted against each other and vying for the best ranks. According to the August figures released by Value Research, the top schemes for over one year (in that order) are those from Zurich India , Escorts MF, Pru ICICI, Dundee MF and Sundaram Newton. At the bottom of this one-year list are schemes managed by SBI MF, Canbank MF, Birla Sunlife, LIC MF and Libra/Taurus.

At the moment, an ELSS has to compete with options like RBI Relief Bonds and National Savings Certificates. It may be mentioned here that no scheme could make money last year.

The best in the category, Zurich India Taxsaver, provided a negative 15 per cent return, while SBI Magnum Taxgain, the worst-performer, lost as much as 61 per cent during that period.

According to Cholamandalam Distribution Services (which, incidentally, has a feature on equity investing on the cover of its current missive to investors), investors normally select their tax-saving vehicles in March, the last month in a financial year.

This, however, can also be accomplished by farming out one's investment over 12 months. Regular investment would help reduce the average cost of units.

Assuming a 15 per cent return, a monthly investment of Rs 833 can fetch over Rs 12 lakh in 20 years. Increase this to Rs 1,500 per month, and you could get more than Rs 22 lakh, is the argument put forward by Chola.

The taxplanners, it may be mentioned, have a three-year lock-in period. The three-year returns provided by Zurich India Taxsaver is around 58 per cent.

The other major performers on a three-year scale are Alliance Capital Tax Relief (44 per cent), Tata Tax Saving Fund (25 per cent) and IDBI Principal Tax Savings Fund (16 per cent).

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