Advisors are hoping of garnering good inflows in ELSS this year.
With the BSE Sensex gaining more than 2000 points since January this year, advisors are hoping to attract more clients in ELSS this year. ELSS have two big advantages:
1. They come with the shortest lock-in period of three years as compared to other products falling in the 80 C of the Income Tax Act like PPF or NSC.
2. ELSS is the only investment avenue which offers tax benefits through the equity market route.
However, advisors say that the assured returns offered by PPF and NSC drive a lot of investors towards these traditional avenues.
“They (investors) come in ELSS after investing in PPF and insurance premiums. ELSS can offer better returns as the money is locked in for three years. We don’t hard sell ELSS. We send out a newsletter informing clients about the benefits of ELSS versus other instruments,” says Gajendra Kothari of Etica Wealth Management.
With a recovery in the market, ELSS as a category has generated an average of 14% to 16% annualized return in the last one year. With this kind of performance, advisors are optimistic of getting clients in ELSS.
“The demand for ELSS peaks in the last three months of tax filing. We are getting enquires for ELSS. We get Rs 5 to Rs 6 crore every month in ELSS. Those who have invested in ELSS in the last two years are happy with the recent rally in market,” said Sanjay Shah, Managing Director, Prudent Corporate Advisory.
Dilshad Billimoria of Dilzer Consultants is splitting tax-saving investments within PPF and ELSS for her clients. “PPF and ELSS are the most preferred avenues of tax saving among investors. We recommend ELSS if our clients need the money soon. We also recommend investing in PPF if our clients already have a PPF account. Otherwise we split between ELSS and PPF. We are recommending only the best performing ELSS schemes to our clients.”
Ramesh Bhat of Aniram advises his clients to treat ELSS as their retirement kitty. “Investors are definitely showing interest in ELSS as these schemes have given good returns in the last one to two years. Low lock-in period also makes it attractive. I generally advice investors to stay invested in ELSS even if the lock-in is over and treat it as retirement corpus. I have investors who have remained invested in the scheme for nine years.”
AMCs on their part are leaving no stone unturned to get this three year sticky money by increasing commissions under ELSS. While some AMCs offer the regular structure of upfront and trail, majority of other AMCs are offering three year upfront commission ranging from a minimum of 2.5% to 4.5% based on volume of business. The commissions are likely to go up further from January, say distributors. Some advisors prefer to opt for the regular commission structure of upfront and trail as there could be a possibility of market valuation going up which in turn increases trail revenue.
Investors have parked Rs 25027 crore in ELSS which represents 3% of industry’s AUM. The rally has also spurred investors to redeem from ELSS with the industry recording net outflow amounting to Rs 1414 crore (year to date). The finance ministry’s plan to exclude ELSS from tax saving instruments under DTC has cast a shadow among this favorite investment vehicle of advisors.
