Equity linked savings scheme (ELSS) has been one of the favourite tax saving instruments with investors. Government policy to give push to equity savings led to extending tax benefit on the ELSS under Section 80 C of the Income Tax Act (up to investments of Rs 1 lakh).
With the coming into force of the Direct Tax Code (DTC), the tax benefit on ELSS will no longer be available from the next financial year (April 1, 2012) onwards. This prospect has several ELSS investors worried as to what will happen to the money they have already invested.
The apprehension of losing tax benefits as well as volatile equity markets had a negative impact on the fund flows of ELSS. Over the last one-year, there has not been any significant growth in the assets of tax-saving funds.
The assets have grown marginally by 0.18 per cent to Rs 24,914 crore as on June 2011 from Rs 24,868 crores as on March 2011. Dhruva Chaterji, Senior Research Analyst, Morningstar-India, says, One of the reasons is the continuous net outflow of funds from the category, except in the months (say from December - March) when tax-planning season is at its peak.
Also, volatility in the equity markets, especially in the months of January and February last year when the markets fell by around 10 per cent and 3 per cent respectively, took a heavy toll on the categorys assets. This was despite the category witnessing net inflows in both these months.