The Hindu Business Line : Equity linked tax savings schemes witness huge investment

Chennai, May 5 A booming stock market seems to have prompted investors to allocate larger sums to equitylinked tax saving schemes floated by mutual funds. Assets managed by ELSS (equity-linked savings scheme) mutual funds have grown nine-fold between April 2005 and March 2008, from a minuscule Rs 1,727 crore to Rs 16,000 crore.

Relaxations in the overall investment limits for ELSS funds eligible for tax breaks over the past three years seem to have given a fillip to collections. Until March 2006, investments up to Rs 10,000 in ELSS enjoyed a tax rebate under Section 88 of the Income-Tax Act. This was tweaked in 2006-07 to bring ELSS funds under the overall investment limit of Rs 1 lakh under Section 80C. This period saw the assets under management grow from Rs 1,727 crore to Rs 6,589 crore, a three-fold increase.

Momentum sustained

This momentum has been sustained in recent times with tax-saving funds witnessing a growth of 55 per cent in the two years to March 2008. During the same period, plain vanilla equity funds grew by 31 per cent, adding Rs 1,56,722 crore.

While there have not been too many new launches in this space, established ELSS funds which have topped the return charts over the past three years have been the ones to see substantial inflows. Out of the total ELSS corpus of Rs 16,000 crore, about a fifth is contributed by Magnum Tax Gain, managed by SBI Mutual Fund. The fund, which recorded a compounded annual return of about 43 per cent over the past three years, has seen its corpus swell from a meagre Rs 89 crore in April 2005 to Rs 3,154 crore in by March 2008. Birla Sun Life Tax Relief 96, with a 40 per cent return over the same period, has seen its assets expand from Rs 14.3 crore in April 2005 to Rs 618 crore by end March 2008.

Sundaram BNP Paribas Tax Saver (41 per cent) also saw an expansion in assets to Rs 447 crore from Rs 11 crore in April 2005.

While the equity-linked funds have gained popularity, collections under small savings avenues such as the National Savings Certificates have seen a decline in recent times. In 2004-05, total collections under NSC stood at Rs 10,097 crore. But these stood at only Rs 3,628 crore in the first nine months (until December 2007) of the current fiscal year, as per the data provided by the Accountant-General, Posts and Telegraph. Given that the last quarter usually accounts for 35 per cent of the total annual mop-up, the FY 08 collections could be in the region of Rs 5,600 crore.

The longer six-year lock in period of NSC, compared to five years for bank term deposits and three years for ELSS seems to have worked in the latter’s favour.

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