Mutual funds line up dividends on ELSS to woo tax savers

Mutual fund (MF) houses are lining up dividends on equity-linked savings schemes ( ELSS) to attract investors looking to axe the tax at the end of the financial year. The market downturn hasn't deterred some fund houses from paying high dividends - Birla Sun Life MF has paid a dividend of Rs 6.50 per unit on its `Birla Sun Life Tax Relief Fund', the highest in six years.

HDFC MF has given a payout of Rs6 per unit on its `HDFC Tax Saver Fund'. Other fund houses have also either announced or made dividend payouts. While Sundaram MF has offered Rs0.50 per unit, BNP Paribas MF is providing Rs0.25 per unit. L&T MF has also announced dividend payouts on two of its schemes. Several fund houses paid dividends during January and February.

Despite the poor show by the markets, sales in ELSS -or tax-saver MFs -increased 12% year-on-year to Rs2,154 crore in January and February. The last three months of the financial year form the busiest period for ELSS firms as investors rush to buy these products to save tax on time.

Fund houses typically come out with dividend offers during this time of the year as it ensures income as well as saving on taxes for investors. “This is the season for ELSS dividends. Though the markets have fallen, we have accumulated gains (in schemes),“ says A Balasubramanian, CEO, Birla Sun Life MF.“We are using the gains to distribute dividends,“ he says.

Gopal Agrawal, chief investment officer, Mirae Asset Global Investments India, says, “They (fund houses) are sitting on booked profits and are using it to pay dividends. Since ELSS comes with a lock-in period of three years, investors also look forward to regular rewards and income.“

Equity MF dividends, however, had dried up between 2010 and 2014 as the markets remained tepid. Several schemes did not pay dividends during this period because they did not have enough incremental profits.