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    Are ELSS mutual funds losing their charm?

    Synopsis

    According to AMFI data, the ELSS mutual fund category has seen net inflows worth Rs 931 crore in January 2020.

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    Are mutual fund investors giving Equity Linked Saving Schemes or ELSSs a miss this tax saving season? Data from the Association of Mutual Funds in India (AMFI) point towards it: even though the equity mutual fund category saw net inflows hitting a 10-month high in January 2020, the ELSS category witnessed a decline in inflows.

    According to AMFI data, the ELSS mutual fund category has seen net inflows worth Rs 931 crore in January 2020. This figure is considerably lower than the inflows of Rs 1,244 crore seen by the ELSS category in January 2019. The inflows were considerably higher at Rs 1,986 crore in January 2018.

    Mutual fund advisors believe that investors may be avoiding tax planning mutual fund schemes in this tax saving season because of the poor performance of ELSS schemes and other equity funds in the last couple of years. The ELSS category has offered 2.18% YTD returns.

    Things You should consider
    • Annualized Return
      for 3 year: -2.53%
    • Suggested Investment
      Horizon: >3 years
    • Time taken to double
      money: N.A
    “Tax saving mutual funds because of the good returns and ease of investing were considered highly lucrative. However, this time around, the investors are disheartened by the annual returns posed by these schemes in the last couple of years and hence you can’t see the rush,” says Babu Krishnamoorthy, Chief Sherpa, FinSherpa, a Bangaluru based money management firm.

    The last three months of the financial year are considered the tax-saving season in India. Many mutual fund investors flock to invest in ELSSs to save taxes last minute. However, the rush is missing this time.

    “ELSS is the only instrument that gives you the luxury to invest today and show the proof tomorrow,” says Krishnamoorthy.

    Even the December numbers had been disappointing for the ELSS mutual fund category. While December 2017 saw an inflow of Rs 1166 crore, this number came down to Rs 841 crore in 2018. The net inflow in ELSS funds in December 2019 stood at Rs 479.57 crore.

    Some mutual fund advisors believe that the numbers might improve in the next two months. “March is the last month of tax saving. So, I am expecting that the numbers won’t decline from here, but it will be definitely lower than the previous years,” says Krishnamoorthy.

    Mutual fund advisors worry that the trend may get worse in the next financial year, after the new personal tax regime kicks in. Taxpayers have the option of choosing the new flat rate which is lower than the existing income tax slabs if they are willing to forego tax exemptions and deductions. Financial planners and mutual fund advisors believe that it might disincentive savings and investments among taxpayers, especially the younger ones among them.

    “The new budget rules will further hit the ELSS inflows in the coming months. The govt seems to have discouraged saving/tax planning instruments like ELSS, so many investors might want to go back to EPF, PPF and FDs,” says a mutual fund advisor.


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    1 Comment on this Story

    May 175 days ago
    Don't buy ELSS MF with a portfolio more than 50 companies, as too much diversification yields less returns.
    The Economic Times