SIP route little used for tax saving funds

While equity MFs get SIP inflow of Rs 4k cr a month, only a tiny part of this is invested in ELSS

Manjula Prasad, 47, a Raipur-based mutual fund (MF) investor, is by profession a teacher in a government school. Last week, she rushed to her MF advisor on investing a sum of Rs 50,000 in a way to save on tax, under Section 80C of the Income Tax Act.

Due to the late decision, she ended up investing in a scheme where the net asset value (NAV) was at a 52-week high. There are several such people, who they tend to invest a large amount at the end of every financial year, instead of spreading their investments through the period via monthly systematic investment plans (SIPs).

While equity MFs get SIP inflow of around Rs 4,000 crore a month, only a miniscule part of this is invested in equity-linked savings schemes (ELSS). During the April-January period, first 10 months of FY17, the MF sector had net inflow of nearly Rs 50,000 crore in the pure equity segment. Inflow into tax-saving schemes was only Rs 6,200 crore.

Worse, half this latter amount was from November on. This translates to less than Rs 500 crore of monthly inflow in the first half of the financial year; equity got 10-fold more.

Says A Balasubramanian, chief executive officer (CEO) at Birla Sun Life MF: "Investors need to prefer the SIP route in ELSS, too."

The business is partly to be blamed, he adds; generally, their push for tax-saving instruments comes only in the last few months of a financial year. "We (at Birla Sun Life) are trying to push such schemes throughout the year, so that investors plan in advance their tax liability and accordingly start investments," he says.

Agrees Sundeep Sikka, CEO of Reliance Nippon MF: "It is the human psyche of waiting till the last moment before acting. There is a need to push ELSS through the year, through SIP, so that investors remain disciplined and are saved from the last-hour rush and stress. I think the three-year lock-in period in ELSS for every transaction also keeps investors away."