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Nilanjan Dey

Kolkata , July 8

INFLUENTIAL sections of the asset management industry are rooting for alterations in all diversified equity funds so as to provide investors with a built-in ELSS (equity-linked savings scheme) option, complete with the mandatory lock-in and tax rebate under the Income-Tax Act.

The inclusion of a separate option, to be seen in the context of Finance Act 2005, will lead to all-round benefits, claim fund circles. There will be, for instance, no need to launch new tax-planning schemes and fund houses can simply change their application forms to supply investors with the option.

As things stand, an individual or a Hindu Undivided Family (HUF) is eligible for tax rebate under Section 88 of the Act. This has been replaced by the new Finance Act with another section - 80C.

Under Section 80C, individuals and HUFs will be eligible for deduction from their total income in respect of certain eligible contributions and investments. As per section 80C(2)(xiii), subscription to units of any MF (notified under Section 10(23D) of the I-T Act) will qualify for deduction up to Rs 1 lakh - along with other eligible contributions.

"All you have to do is to give an investor a box to tick in the application form. That will indicate his willingness to allocate under an ELSS option," says Mr Naval Bir Kumar, MD of Standard Chartered MF. The idea, he adds, will be welcomed by the investor community, which will appreciate it for its efficacy.

The new ELSS offer documents that are being worked out may be seen in the backdrop of the latest tax provision, it is also felt. An ELSS recently mooted by DSP Merrill Lynch MF, for instance, clearly states that subscription by individuals and HUFs will start qualifying for deduction up to Rs 1 lakh as soon as changes are notified.

According to Mr Prabal Nag, in charge of marketing at JM Mutual Fund, a built-in provision will make things easy for those who do not want to look beyond normal, diversified growth scheme. "In such a case, an investor need not track more than one product, one fund manager and one folio," he quips.

Tax planners, MF sources mention, may be seen in view of their recent track records as well. The average one-year return thrown up by the ELSS category stands next to that delivered by the highest performing FMCG funds.

The Indian market, it is felt, is ripe for more allocations driven by tax considerations of investors. However, considering the total number of fund houses in operation at the moment, not too many ELSS products are available for investment. A few houses - Franklin Templeton MF, Principal MF and HDFC MF - have more than one ELSS under management. The players that do not have these schemes in their stable include Reliance MF, Deutsche MF and HSBC MF. Both Deutsche MF and HSBC MF have filed offer documents for SEBI's approval.

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Fund houses pitching for built-in ELSS option

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