• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Port Info

• Ships in Ports
  
  

Archives

• Yesterday
• Datewise
• Resources

Group Sites

• The Hindu
• Business Line
• The Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

Aarati Krishnan

WILL the mutual fund industry manage to capture a larger share of the tax-saving pie, once the Budget proposals take effect?

The industry is optimistic that it will. Last year, tax-saving funds (also known as equity-linked savings schemes or ELSS) managed a measly Rs 53 crore in inflows, while tax-saving instruments such as the Public Provident Fund and infrastructure bonds raked in over Rs 20,000 crore!

But the fund industry is hoping that this will change, with the Budget making tax-saving equity funds eligible for tax exemption with an enhanced limit of Rs 1 lakh under the new Section 80C.

Fund houses feel that the Budget measures could prompt affluent individuals, who are big investors in other equity funds, to take a serious look at tax-saving funds.

"The Budget opens up tax saving investments to investors with a total income of over Rs 5 lakh. These are people who regularly invest in our equity funds. We could persuade high net worth investors to put some of their long-term money into these funds," says Mr Rajan Krishnan, Vice-President (Sales and Marketing) at Principal PNB Mutual Fund.

However, he cautions that there needs to be greater clarity about whether existing tax saving funds will be eligible for the benefits announced in the Budget.

The industry also feels that the ceiling of Rs 10,000 on investments was a major stumbling block to investors taking this product seriously. With this ceiling lifted, the investor base for tax-saving funds could expand.

"The intention of the Budget is clearly to include ELSS funds in the eligible list. With the earlier ceiling of Rs 10,000 on ELS investments gone, these funds will become more relevant to investors," comments Mr A.K. Sridhar, Executive Director and Chief Investment Officer, UTI AMC.

Others feel that the potential for high, equity-linked returns could tilt the scales in favour of tax-saving mutual funds. "The Budget proposals effectively mean that ELS funds can now attract tax savings of up to Rs 1 lakh. Since these are among the few equity linked instruments in the tax-savings basket, this measure will go a long way in enhancing the prospects for this product," says Mr Pankaj Razdan, Managing Director of PruICICI Mutual Fund.

However, some in the industry feel that it will still be quite difficult to wrest investors away from market-linked insurance plans, which have been outselling mutual funds by a big margin.

"The incentives we pay our distributors are a fraction of what insurance companies pay (on unit-linked plans). With a regulatory limit of 2.5 per cent on our annual expenses, we can't afford to advertise heavily on our products either. I don't see the advantage that market-linked insurance plans enjoy, being whittled down," says the marketing head of another mutual fund.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Gold futures: Jewel in a portfolio

Copyright © 2005, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line