Industry experts say a combination of factors has dampened investor enthusiasm for ELSS this year.
Mutual fund houses are ramping up commissions for ELSS in an attempt to shore up assets even as uncertainty over direct tax code (DTC) remains. Distributors have told Cafemutual that a combination of upfront and trail is being offered in the range of 2% to 5%.
Some fund houses are paying three year upfront commission with no trail and others are offering a higher trail with less upfront. Distributors say that better performing ELSS are not paying high commissions as they have are higher acceptance among investors.
Concerns over DTC and uncertain markets seem to have taken the shine away from ELSS. "Interest is building up and it will catch up in February and March. This time around, the inflows are not as high as what they used to be two to three years back. The equity markets are also a concern among investors," says Karan Datta, National Sales Head, Axis Mutual Fund.
Undeterred, many IFAs continue to promote ELSS. "We are advising our investors to consider ELSS as a tax saving avenue. Some investors have been concerned about the returns on ELSS. However, we are asking our investors to seriously consider ELSS because it is the only product which offers tax benefit with an opportunity to participate in equity markets" says Suresh Sadagopan of Ladder 7 Financial Advisories.
Apart from the uncertainty that surrounds markets, the recent changes in PPF are also giving ELSS a run for its money. "After the government increased the ceiling of investment in PPF to Rs. 1 lakh from Rs. 70,000 and interest rate from 8% to 8.6%, it is becoming difficult to get money in ELSS," says a Mumbai based distributor.
ELSS managed Rs. 20,630 crore as on December 2011, down 19% from Rs. 25,569 crore in March 2011. In December 2011, ELSS saw net inflows of Rs. 112 crore. The BSE Sensex lost 21% from March till December 2011.
"Most salaried class people are investing through SIPs in ELSS," says Hemant Rustagi of Wiseinvest Advisors.
