Mutual funds are offering high upfront commission to distributors for getting investments in ELSS products; Axis offers highest upfront commission of 5.5%, while other are paying in the 2-3% range
Mumbai: Axis Mutual Fund is offering 5.50 per cent upfront commission as an incentive to distributors for getting investments in Axis Tax Saver Fund. ICICI Mutual Fund is paying an incentive of 0.50 per cent to distributors, in addition to the upfront commission, on investments brought in its equity linked savings schemes (ELSS).
SBI Mutual Fund too is offering a higher upfront commission of 2 per cent for investments received in its ELSS schemes. Most mutual funds, including DSP BlackRock Mutual Fund and DWS Investments, are paying higher upfront commission in the range of 2-3 per cent as they target investors wanting to save on their tax outgo. These special upfront commission offers are for the limited period – January-March 2001, according to industry officials and leading distributors.
The amounts invested in ELSS are eligible for exemption from income tax under Section 80C, with the condition that the tax payer stays invested for a minimum of three years.
Bulk of tax saving investments – in ELSS, in buying insurance policies, in infrastructure bonds – happens during the last three months of every financial year. Insurance companies have been getting a big chunk of their business during these three months. This has been true with ELSS investments too but the inflows have not been very significant.
Mutual funds appear to be aggressive now in tapping the potential. The AUM of all ELSS schemes adds up to Rs 27,011 crore, which is just 4 per cent of total AUM of the industry. In December 2010, net inflows in ELSS were Rs 90 crore. During January-March 2010, net inflows in tax saving schemes of mutual funds were Rs 1,244 crore.
In contrast, insurance companies received nearly Rs 42,000 crore in first year premium income during January-March 2010. Of this, more than Rs 25,000 crore of premium income was received in March 2010 alone.
The biggest advantage of building AUM under ELSS schemes is that there is a mandatory lock-in period of three years. The tax concession available on investments in ELSS schemes is available only if an investor stays invested for three years.
Axis Mutual Fund is offering a very high upfront commission but will not be paying trail commission for the three years of the lock-in period, according to the brokerage sheet it has circulated among distributors. Cafemutual has a copy of the brokerage sheet, which is valid for the three months ending March 31, 2011. Axis will pay 1 per cent trail commission from the fourth year onwards on investments received under ELSS during these three months. SBI Mutual Fund too will not be paying trail commission on ELSS investments.
ICICI Mutual Fund, the third largest fund house, is offering additional incentive for achieving different targets for different categories of cities.
SBI Mutual Fund too is offering in the range of 2% upfront commission with no trail under its ELSS schemes.
“We are not offering trail. There is some comfort in ELSS as the money stays with us for at least three years, which allows us to give this kind of pricing,” said the sales head of a fund house which also offers higher upfront incentive.
