The Hindu Business Line : Asset sizes of equity linked savings schemes swell

Equity linked savings schemes (ELSS), or tax-savers in other words, are coming into their own, considering the size of the assets these have started managing. The assets under management of several tax-planning funds is currently well over Rs 1,000 crore. A couple of others are nudging to this mark.

Tax-saving products offered by SBI, Reliance and HDFC are far ahead of their peers in terms of assets, managing Rs 2,320 crore, Rs 1,855 crore and Rs 1,181 crore respectively at the end of July. Not far away is Fidelity, which has over Rs 900 crore.

The situation, fund circles say, marks a change from what was pertinent till recently, at least partially — tax-savers with a microscopic corpus, ignored largely by investors despite the benefit they offered under the I-T Act.

Different scenario

The scenario now seems to have altered somewhat, thanks mostly to rising awareness. The market is now more clued-in on this front, a trend that is reflected in asset sizes. Distribution outfits also report an increase in sale of tax-savers in recent times. “Investors are getting more careful about the way they handle their taxes. Some of them have earned super-normal profits in the past couple of years.

A section of the market is now more open about using the relevant provision in the tax laws. Investors have also seen how exposure to the equity market over a relatively longer period can make a difference to their wealth creation efforts,” maintained Mr Hitungshu Debnath, Director, Wealth Management Group, Motilal Oswal.

The reference is clearly to the fundamentals of an ELSS, stemming from Section 80C of the I-T Act, which allows an individual investor to pare his burden up to Rs 1 lakh, provided there is a lock-in of three years.

‘Good performance’

Two of the three leading funds are ‘old hands’ — SBI Magnum Taxgain, which goes back to 1993, and HDFC Taxsaver, which was started in 1996. Reliance Tax Saver is of more recent origin, having flagged off in mid-2005, according to Value Research.

For most players, assets have actually followed performance, it is pointed out. With 63 per cent to its credit, SBI Magnum Taxgain is the No 1 performer for the five-year period ended August 31. HDFC Taxsaver, a legacy of the erstwhile Zurich MF, is the second name in this league; it has delivered 54 per cent during this period. As fund managers have often lamented in the past, an ultra-small AUM often makes life difficult for the asset management company in question.

"Not much can be done with an asset base that is very small," noted Mr Sandeep Kothari, Fund Manager, Fidelity International. That is, of course, not the case with Fidelity Tax Advantage, which was the fourth-largest scheme in August with Rs 907 crore.

Fund sources further point out that there is no mandatory redemption at the end of the lock-in period. An investor can stay put in a tax-saver even after three years. This, it is felt, reduces the chance of cashing out when market conditions have become adverse.

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