Assets of tax-saving MFs show lower erosion than equity funds

Last Updated: Thu, Feb 14, 2013 04:25 hrs

Tax-saving products of mutual funds have seen lesser erosion in assets under management (AUMs) compared to traditional equity schemes so far this financial year. While equity funds have seen net outflow of Rs 13,000 crore in the ongoing financial year, outflow from equity-linked savings schemes (ELSS) of mutual funds, which offer tax benefits to investors, was just Rs 1,875 crore in the same period, according to Association of Mutual Funds in India (Amfi) data.

AUM of ELSS stayed above Rs 25,000 crore in the last three months. According to latest data available with mutual fund industry body AMFI, the total AUM of ELSS, or tax-saving funds, stood at Rs 25,069 crore at the end of January 2013.

Tax-saving funds have also seen less net redemptions and drop in assets as compared to traditional equity funds due to robust inflows into these schemes through systematic investment plans (SIPs) and the mandatory three-year lock-in requirement.

Mutual fund industry officials and wealth managers said the rise in AUMs of ELSS has more to do with the rise in markets than inflows.

"The lock-in period in ELSS and the market's rise in 2012 have resulted in ELSS AUM showing a rise. These schemes are showing lower outflows because retail investors (who mostly buy ELSS) usually do not withdraw soon after the lock-in ends," said Raghvendra Nath, managing director, Ladderup Wealth Management.  

From a meagre Rs 1,410 crore at the end of January 2003, the AUM of ELSS has soared nearly 18 times in 10 years, AMFI data shows. The ELSS funds generally see significant inflows between December and March, as investors look to invest in schemes offering tax benefits as part of their fiscal-end tax planning activities.

Investments of up to Rs 1 lakh in ELSS funds by eligible investors qualify for tax deduction under Section 80C of the Income Tax Act. An investment of Rs 1 lakh in ELSS funds can help an investor save up to Rs 30,900 from total tax liability.

But, interest in these tax-saving mutual fund schemes has been waning since 2007 because of the turbulence in the markets. In 2011-12 and 2012-13 so far, a series of tax-free bond issuances also hindered the flow of money into fund tax-savers.

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