Equity-Linked Savings Schemes are getting a makeover. Mutual funds are pushing the product now with extra vigour, while brokerage rates for such schemes have nearly doubled.
Further, systematic investment plans for such schemes are being launched on a renewed platform.
This flurry of activity can be attributed to the Union Budget for 2005-06, which made investments in ELSS eligible for inclusion in the Rs 1 lakh limit that will be deducted while computing taxable income. In fact investments in ELSS is the only equity investments allowed in the eligible list.
Ravi Sharma, head of sales at Birla Sun Life Mutual Fund, said, "We have increased the brokerages to around 4 to 4.5 per cent, upfront payment." Earlier, brokerages used to be around 2.25 per cent.
The head of sales of another leading domestic fund house said that trail commission (brokerages paid out in order to retain the customers) has increased to 100 basis points from the previous 40 basis points.
Some fund houses are paying upfront commission to distributors in order to aggressively push the product, while others are using a strategy of brokerage plus trail commissions, where the trail is higher.
ELSS have a measly corpus of only around Rs 672 crore (Rs 6.72 billion), which is hardly 0.45 per cent of the total assets in the industry.
One of the main reasons for this is the mandatory three-year lock-in period for such investment. Earlier, investments in such schemes were eligible for a rebate up to a limit of Rs 10,00 in a year.
With an assets base of Rs 94 crore (Rs 940 million), Principal MF has the highest corpus for its ELSS in the industry. HDFC has two schemes with total corpus of around Rs 126 crore (Rs 1.26 billion).
SBI Mutual Fund's ELSS also has a corpus of Rs 75 crore (Rs 750 million), while Pru-ICICI MF and Tata MF have Rs 50-odd crore in their tax schemes.
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