Time to separate equity Investment ( E.L.S.S.) and Tax Saving

The Direct Tax Code has removed the Equity Linked Tax Saving Scheme popularly know as E.L.S.S. as the Tax Saving Instrument from the Financial Year 2012. Naturally, the present tax saving schemes shall become ' Dormant ' Schemes and shall commence there Sunset thereafter. This Schemes gave Huge advantage to Small Investors like me, for last 2 decades and are the MOST Beautiful tax saving instruments till today. The Changes from the Governmental Stance as of now on this Schemes is for sure, unless declared otherwise.

However, the sudden Death of E.L.S.S. may put Mutual Fund Houses, Fund Managers and the Investors in a very difficult zone of inconvenience and possibly  future Losses. 

1) End of Liquidity : Naturally, the Lack of Fresh Investment triggers this open ended scheme into a Sunset schemes, wherein no new investment likely to come. The Investment Corpus of the Fund is Just Frozen from April 2012 on wards

2) Fund Management difficulties : ( Likely )

   1) Redemption Only : The Sunset Schemes may have only Redemptions, as investors may switch over to new Schemes increasingly

    2) Larger Cash Holding : The Cash Component maintained by the Fund Managers is likely to Increase in Anticipation of the Likely Redemption by the Investors of the Scheme. This may affect the fund management potential of the Fund Manager and in turn the Performance of the particular Fund.

   3)  Fund ( Under ) Performance :

       A) Falling Market Conditions :
                   In the Falling Market conditions, Asset Under Management ( A.U.M.) of the Fund falls down and Fund Managers make a Huge Efforts to maintain the Net Asset Value ( N.A.V.) thus safe guarding the Investor's Wealth.  However, the extra Cash Call of Sunset Scheme may put a limitation and hesitancy on the Manager. Moreover, in Panicky conditions many Investors sell the press button, putting redemption pressure/ Stress on the A.U. M.of  Fund. This may put enormous pressure on fund and the task of maintaining  ' Beta ' of the Fund with its Underlying Index be stressful. Some Funds may under-perform significantly over the market.

      B)  Rising Market Conditions : 
             
                  The rising market conditions may ' Cushion ' the A.U.M. of the Fund. But, the defensive posturing of Fund's asset allocation i.e. A Larger Cash Calls may affect the fund failing to give Market Performance leave alone the ' Alpha ' i.e. performance better than Market or the Underlying. This again may find opportune Investor to switch or Redeem the FUND. Thus Accentuating under performance of Scheme.

     C ) Volatile Markets may make the conditions from the Bad To Worse for the Obvious reasons

3) Fund Expenses :  Rising Expenses..?

Obviously, the Fund Managers may well have to take calls on market often, for better Fund management and if so, the ' Turnover Ratio' of the Folio may rise and expenses  in many cases may rise. The SEBI Ceiling of expenses if reached, may hamper the fund management perversely.

4) Quality of Management : 

This ' DEAD WOOD ' Fund management may affect the Aspects like  ' Investment Calls' ,  ' Sectoral and Asset Allocation' and '  'Liquidity Management ' and Several other nitty' gritty's involved in better fund management. In Short, Many Funds may find this Task beyond Control and may feel  ' Trap Door' conditions insurmountable.

5) Disinterest by Fund Houses : 

    Some Fund houses may simply ignore this Schemes, for one or all the above reasons. As Such there is no any precedence that I know, but Some Houses were reportedly 'dumping ' in this Schemes, in the ' Haydays' of 2007-08. Even, though the morality of Indian Mutual Fund Industry is not doubtable but the circumstances may turn daunting and difficult to protect investors' wealth.

6) Investor protection :

The best Guy to protect an Investor is Himself. However, even if one takes up the call to invest in E.L.S.S, THE FUND with LOW AUM be Best Avoided for the reason of culpability to the Hostile Circumstances. The track record  and Portfolio Analysis are worthy tools. Investors may take an Independent advise.

The Best Advise to Investors would be to Separate the Equity Investment particularly through Mutual Fund  E.L.S.S. and Tax Saving. Unless, of Course the Finance Ministry extends the Scheme even if, it is on Exempt-Exempt-Tax basis. 


And, It will be highly advisable to take good advise, create prudent strategy and Keep yourself HAPPY.



At Present the only Guy who can tell you further.