March mayhem: Collections in ELSS dip by 73%

Equity-linked savings schemes (ELSS), which were a major grosser for the mutual fund industry, failed to enthuse investors in the last quarter of the financial year 2008-09.

Sample this: ELSS collected Rs 3,808 crore between January and March 2008. During the fourth quarter of 2008-09, they managed to mop up Rs 1,134 crore – representing a fall of 70.20 per cent. In March this year, fund houses collected Rs 547 crore, which was 73 per cent lower than the Rs 2,071 crore raised in March 2008.

Investors flock to these schemes, especially in the last quarter of any financial year, because they get tax benefits. Also, there is no long-term capital gains tax in these funds. However, given that the stock market indices dropped 50 per cent during the last one year, investors are unwilling to lock-in their money for three years (ELSS have a lock-in of three years). On the whole, the average assets under management (AAUM) of the mutual fund industry decreased by 1.5 per cent, or Rs 7,688 crore, to Rs 4,93,285 crore at the end of March 2009, according to the latest data released by the Association of Mutual Funds in India.

Income funds saw the largest outflow of Rs 62,381 crore, followed by liquid funds which lost Rs 36,991 crore. The outflow was mainly due to withdrawals from banks and corporates who exited these categories towards the end of the financial year to shore up their balance sheets.

Also, many companies withdrew their investments to pay advance tax.

Balanced funds saw a net outflow of Rs 39 crore, mainly due to withdrawals by institutions and some dividend payouts by fund houses, said a fund manager.

Equity funds saw a net outflow of Rs 3 crore in March, compared with a net inflow of Rs 143 crore in February. Lakshmi Iyer, head (fixed income and products), Kotak Asset Management, said, “Equity funds have seen this outflow because of the poor sentiment in the equity mutual fund.”

Fund of funds, which include schemes that invest money in the overseas market, saw a net outflow of Rs 121 crore.

Since November, when interest rates started falling, gilt funds have seen inflows because of good returns in a falling interest rate regime.

Though there was an outflow in February because of apprehensions about the rising government borrowing, investors were back to investing in them during March, when this category of funds had a net inflow of Rs 482 crore. Gold ETF saw a net outflow Rs 23 crore.