In a crowded space like 80C where a number of products compete to provide the same amount of tax benefit, selling ELSS to clients can be a challenge. Most taxpayers tend to exhaust their 80C limit through PPF, EPF, home loan principal and FDs. Unless investors are consciously looking for returns in addition to tax saving, ELSS may not be the first choice for them. In such a scenario, how can distributors make a strong case for ELSS among their clients?
We all know the benefits of ELSS. It has an edge over other tax savings instruments when it comes to tenure and returns. It has the lowest lock-in period of three years. But lock-in doesn’t necessarily mean investors can’t remain invested beyond three years. In fact, many distributors like Rikhav Desai are recommending ELSS to clients to achieve long term financial goals like retirement planning, child education, marriage, and so on.
After completing his engineering degree in 1994, Rikhav Desai followed his father’s footsteps. Mutual funds were still taking baby steps back then. Today, he caters to around 2,600 investors, out of which 75% investors have invested in equity funds. What is commendable about his practice is that approximately 25% of his investors have invested in ELSS!
Rikhav operates from Navsari in Gujarat. A majority of his clients are retail who are based in Navsari and surrounding villages. While Gujarat is known for equity cult, Rikhav says that the area where he operates lacks financial awareness. To help people channelize their savings into equities, his success mantra is education. “Education empowers people. The more empowered they are, more willingly they will invest,” believes Rikhav.
He conducts many Investor Awareness Programmes throughout the year which helps him engage with his existing clients, as well as get new clients. Apart from this, he does tele-calling which helps him get many walk-ins. These marketing activities help him add 10-15 new clients every month.
Let us examine how Rikhav makes a strong case of ELSS among his clients. To begin with, he never pitches it as merely a tax-saving instrument. Rikhav thinks of ELSS more as an investment strategy. For him, tax-saving is an added benefit. Also, he compares ELSS with other competing products. This helps his investors get a clear idea about the ELSS advantage. “People generally save through PPF which gives them a return of 8.5-8% over 15 years while ELSS having similar benefits, generates better returns. In fact, in the last five years, ELSS category has delivered a return of approximately 12%. Another point where ELSS scores over PFF and other 80C instruments is smaller lock in and liquidity,” says Rikhav. It is through his belief and expertise that he is able to convince his clients to invest in ELSS.
Rikhav believes that ELSS are ideal products for the youngistaan who is willing to take risk. He says that ELSS
is the only product which scores over other tax-saving instruments in terms of helping beat inflation. While equity has given better returns over the long term, one thing to bear in mind is the time of entry and exit. The demand for ELSS is typically market agnostic, which means that investors rush to invest in this category at the last minute, irrespective of the volatility in the market. Rikhav however cautions that investing in ELSS at rally, and redeeming in bear market may not offer a good experience. The best solution according to him, is for investors to start an SIP in ELSS at the beginning of the year, so that they are able to mitigate volatility.
Rikhav has a team of seven who assist with back-office support while he drives business development and advisory. His target market is retail, and he manages a SIP book of almost Rs. 1 crore per month.
Rikhav’s approach is simple. He believes in educating clients. In fact in the last 3-5 years, he has observed a huge difference in the behavior of his clients, thanks to his investor awareness drive. “They have become more mature when it comes to investing. They don’t back away from the markets during volatility,” observes Rikhav.
“Investors have become matured. They invest more when the market sees a correction. The second half of FY15 was not good for equities but my clients have put in more money in equity funds, particularly ELSS,” says Rikhav.
Apart from education and empowerment of investors, Rikhav feels the other key drivers for his business could be lower interest rates.
“As I operate in ELSS, interest rate reduction would be a big opportunity for me as people would look for alternative forms of investments for saving and investments to earn higher returns,” he says.
Before recommending any fund, the first thing Rikhav does is risk profiling and understanding the investor’s aspirations and goals. Once the goals are ascertained he moves on to short-listing funds which match with his client’s goals.
Other parameters which he takes into consideration before selecting funds are stock and sector allocation in the portfolio, past performance of five years and above all, the overall performance of the AMC as opposed to the performance of individual fund manager.
It is thanks to the consistent efforts of distributors like Rikhav, that the ELSS category is seeing a healthy growth. According to AMFI data, the folios in this category have grown from 65.30 lakh in April 2015 to 73.24 lakh in April 2016. Similarly, the assets under management have increased from Rs. 39,660 crore to Rs. 42,448 crore during the same period.
A forward looking optimist, Rikhav believes that a lot more can be done to increase the penetration of ELSS in small towns like Navsari, and such efforts from advisors across the country can help further enhance the penetration of this category.
