The debacle in the liquid and fixed maturity plan (FMP) may have put
the brakes on the growth in assets under management of the mutual
fund
industry. But it has not
dampened the spirits of fund houses, as far as scheme launches are
concerned.

There are a host of new fund offers awaiting SEBI approval. Asset
management companies seem to have made an early start to cash in on
the ‘tax saving’ season. According to the SEBI website, as many as six
AMCs have lined up equity-linked savings schemes (ELSS) for its
approval last month. These include Religare Aegon, Quantum Mutual
Fund, DBS Cholamandalam, Bharti AXA, Edelweiss and Tata Asset
Management.

The number of ELSS applications filed this year is much higher than
those in the past few years. While JM Financial was the only fund
house to have launched an open–ended ELSS last year, DSP BlackRock,
HSBC and Lotus were the only three fund houses to have launched
similar schemes in 2006-07.

Most of the fund houses, which lined up equity-linked savings schemes
this year, have been launched recently or are relatively new, and have
a long way to go in establishing their identity in the highly-
fragmented and competitive Indian mutual fund industry. The older ones
— DBS Cholamandalam and Tata Asset Management — already have an open-
ended tax-saving scheme each in their kitty and have now come up with
close-ended funds.

This surge in the number of new fund offers (NFO) in the ELSS category
should be viewed in the context of financial year 2008-09 drawing to a
close. Around this time every year, tax-saving instruments see a mad
rush of investors seeking to claim the deduction benefit under Section
80C of the Income-Tax Act. It seems that the mutual fund industry,
where the fresh inflow of funds in equity schemes has almost dried up,
is now trying to use ELSS as a carrot to woo back its (lost)
investors.

ELSS schemes are pure-vanilla equity diversified schemes in structure,
with the only added advantage of a tax benefit. These schemes are
popular as investment in them — up to a maximum of Rs 1 lakh — is
exempted from any tax payment. While this category has also faced the
wrath of the market, investors can take relief from the fact that
these schemes attract a lock-in period of three years. Thus, whatever
the market scenario, redemptions are not possible before the expiry of
the lock-in period.