Tax saver funds see spurt in pullouts

It’s just not investors in diversified equity mutual funds (MFs) who have reaped the benefit of the buoyancy in markets. Equity linked savings schemes ( ELSS) investors too have joined the party pulling out Rs 1083 crore in August-October alone, 127.4% higher than the same period the previous year.

The redemptions in ELSS have been more than twice that of the year ago period in three out of the past four months, data with the Association of Mutual Funds in India (AMFI) shows. Investor pull-outs are usually in the region of Rs 110 crore-150 crore a month in ELSS but have been hovering over Rs 300 crore since July and as a result the category has seen net outflows of Rs 931 crore so far in the year, AMFI data shows.

In fact, investors took out a whopping Rs 446 crore from the category in September when redemptions from diversified equity funds touched Rs 12,804 crore, an all-time high. Interestingly, the pace of redemptions in ELSS has been even faster than that of diversified equity MFs, which have seen record pull-outs in the past few months as the markets remained on a strong wicket.

“A large number of retail investors (in ELSS) have booked profits,” said Jaideep Bhattacharya, chief marketing officer, UTI MF. Fund houses mobilised huge amounts of money from retail investors under ELSS in 2006-07.
With many schemes turning the corner after the good run by the markets in recent months, investors are making an exit, industry officials said.

While short-term movements in the market doesn’t usually impact the category much as it comes with a mandatory lock-in period of three years, the recent spurt has pushed up returns from many schemes making them attractive enough for profit booking.

More than one in every four tax-saver MF has given double digit returns in the past three years (till November 11) and the category has gained more than large-cap and mid-cap funds as well as the benchmark indices such as sensex during the period.

“Performance (by ELSS) is perhaps taking its toll (in the form of redemptions),” remarked a top industry official. Many investors are not getting expert guidance from independent financial advisors who were offering services in large numbers during the boom of 2006-07, he said.

With advice not forthcoming investors have chosen to move out of the category by just booking profits, he noted.
However, industry officials hope that the forthcoming taxsavings season would help them salvage lost ground. ELSS traditionally attracts good inflows during December-March during which last minute investments are made to axe the tax.

“We believe that the category would see good traction from December. Inflows would start picking up if there is a minor correction in the markets,” they said.