ELSS: Tax-saving funds dole out dividends to lure investors

ELSS: Mutual Fund Schemes in this category give 19% return in past year

 

WITH tax-saving season slowly emerging in picture as we step into the New Year, investors in equity linked saving schemes (ELSS) – better known as tax-saving mutual funds – are set to receive hefty dividends as fund houses go all out to attract fresh inflows, people aware of the developments said.

January-March has historically been the strongest period in terms of inflows for tax saving funds as taxplanning gains vogue. Taxsaving funds have recorded an average 19 per cent NAV gain in last 12 months. At the end of November, Amfi data showed that ELSS managed over Rs 26,000 crore in assets – the fourth largest fund category in the mutual fund (MF) industry.

ELSS equity schemes saw net inflows of Rs 1,244 crore in January-March 2010, another Rs 1,134 crore in the same quarter in 2009, over Rs 3,800 crore in the same period in 2008 and around Rs 3,100 crore in 2007.

It's an important quarter for the MF industry.

Many investors await dividends in tax-saving funds before allocating fresh money. Tax-saving funds could see dividend announcements soon, but wished to remain anonymous.

This month, Sundaram Tax Saver (Rs 1.50 per unit) and Franklin Templeton Pension Fund (Rs 1.3 per unit) declared dividends. Others are set to follow suit over the next 45-60 days, MF industry officials said. During September 2010, tax-saving funds such as Birla Sun Life Tax Plan (D), Tata Infra Tax Saving Fund (D) and Axis Tax Saver (D) announced dividends between Rs 1-2 per unit.

Fund-houses have seen nearly Rs 17,600 crore net outflows from equity schemes in the current year, while ELSS equity schemes have seen close to Rs 1,000 crore going out in the same period. Tax-saving season gives the fund houses a fresh trigger to collect assets. With most fund-houses having a taxsaver scheme and Sebi voicing its displeasure of me-too New Fund Offers (NFOs), dividends are expected to play an important role this time.

"If you check history, most tax-saving funds start declaring dividends between November and March. This year will not be any different. This helps the advisors to sell products to investors since they will be competing with products like Ulips. Don't be surprised if dividends are chunky this time," said the head of financial products distribution firm.

In March 2010, more than 10 schemes including Taurus Tax Shield (D), IDFC Tax Advantage ELSS (D), L&T Tax Advantage Series I (D), Can Robeco Equity TaxSaver (D) and Bharti Axa Tax Advantage Eco (D) had record dates for dividends. Another eight schemes such as HSBC Tax Saver Equity Fund (D), HDFC Long Term Advantage (D), JPMorgan Tax Advantage (D) and UTI Equity Tax Saving (D) declared record dates between November 2009 and February 2010.