Investors cash in on market rally, exit tax-saver MFs

The market surge may be bringing in hordes of investors. But investors in equity-linked savings schemes (ELSS) or taxsaver mutual funds (MFs) are cashing in on the rally. The number of folios or investor accounts in tax-saver MFs has fallen by over 2 lakh between April and October due to profit-booking. The total folios in the ELSS category stood at around 61 lakh at the end of October.

In contrast, growth and equity-oriented schemes (excluding ELSS) have added over 5.5 lakh folios during the period, data with market regulator SEBI showed. Redemptions or investor exits in the ELSS category jumped 45.5% year-on-year (y-o-y) to Rs. 1184 crore in AugustOctober, data with the Association of Mutual Funds in India ( AMFI) showed.

While net inflows (higher purchases than sales in schemes by investors) into equity funds surged to Rs 39217 crore so far in the current financial year, tax-saver funds saw net outflows to the tune of Rs 447 crore during the period, AMFI data showed.

Tax-saver funds, which come with a three-year lockin, have beaten large-cap as well as diversified funds during the period. They rank only below small and mid-cap and sectoral funds in the performance chart during the three-year timeframe allowing investors to make exits with good profits.

"Long-term investors in ELSS are making an exit as the returns have been quite good," says Sundeep Sikka, chief executive officer, Reliance Capital Asset Management. Tax-saver MFs have outperformed benchmark indices by a wide mar gin and have gained 45.4% so far in 2014. "There has been a churn. Investors are pulling out money as they have made decent gains," says a senior official with a leading fund house. "It (ELSS) is an old category . Those who have completed the mandatory three-year lock-in period are taking their money out," says a top official with another leading fund house.

Since long-term capital gains for equity is nil, investors are booking profits and reinvesting the funds in equity MF schemes, industry officials say . The increase in investor exits has also come at a lean period for the ELSS category, say officials.

Tax-saver MFs typically see traction in the third quarter of the financial year as well as in the early part of the fourth quarter. "Investments in tax-saver MFs usually happen in JanuaryMarch. We see good inflows into this category only for 3-4 months," industry officials say.