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Look at ELSS as a regular equity investing opportunity with a lock-in: Kaustubh Belapurkar, Morningstar

There could be a potential impact on the flows into ELSS because people will choose the new tax slabs and ELSS as an tax saving investment might not be a popular choice at that point of time, says Kaustubh Belapurkar, Director, Fund Research, Morningstar Investment Adviser India. Editrd excerpts.

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Last Updated: Feb 13, 2020, 02.14 PM IST
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Kaustubh Belapurkar, Morningstar-1200
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What is the impact on ELSS funds post the budget announcements? Do you think that we will continue to see this kind of traction into ELSS funds?
We have obviously seen the impact of the new tax slabs coming in where people can potentially choose the new tax slabs without the exemptions and one of the exemptions that is done away is obviously the 80C under which ELSS would fall. But you need to consider how many people will actually go for that because every individual will figure out where they lie on the tax bracket.

Clearly the ones in the higher salary brackets will to my mind not really go for it but in the sub-15 lakh bracket, people do not really avail too many exemptions. But a fair bit of investors in the ELSS side used to avail of those exemptions in the below 15 lakh bracket. I think there could be a potential impact on the flows because people will choose the new tax slabs and ELSS as tax saving investment might not be the most popular one at that point of time.

The latest data with respect to the kind of flows that we have seen for ELSS funds seems to indicate that we are seeing some sort of an uptick. The inflows have doubled in the month gone by. How should investors look at ELSS funds as an opportunity?
ELSS by itself is a great investment opportunity. Obviously, these are diversified, go anywhere equity funds. The best part about it is that it instils some discipline given that a three-year lock-in comes in. So tax exemptions aside, as a standalone investment, it is a great option. Obviously, you have diversified open-ended funds with no lock-ins but for people who are coming in for the first time, just instilling that little bit of discipline that you cannot remove the money for three years makes it a great option.

I would look at it as a regular equity investing opportunity with a lock-in. I would not mind if each and every investor looked at it even if there is no tax exemption attached to it.

Let us now dissect the individual funds that Morningstar tracks and ratings that are given. There is a lot of bronze rating but there was one silver rating and that is the Axis Long Term Equity Fund Direct Plan The Growth Option. Why this fund stands out and what is the rationale for a silver rating?
We look at a bunch of things. One, is in terms of the people who are managing the strategy. In this case Jinesh who was heading up the team in Axis on the equity side. We have a lot of conviction in not just him, but also the team in terms of analysts that are backing him up. Second thing is the process. Jinesh has very clearly articulated over the years that we have been speaking to him that he has a process of looking for high growth, high quality companies and he is not averse to paying a premium valuation if it so demands for the quality and the growth that he is getting from them.

That style did not work for a period of time say in 2016, early 2017. 2016 had a classic metals rally which he did not hold and went against. . But the proof we are putting is that in this market, where clearly that style of investing is working, he held on to it and now he is reaping rich dividends. That is where a conviction comes from that even when the cycle was against him he stood true to his investing style and that has paid rich dividend for him and that is why we think it is a great strategy, run by a great manager and we expect the process continuity to stay put with Jinesh and his team.

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