Who wrote this article?

Deepak Shenoy, Capitalmind's research team.

Be careful of investing in ELSS schemes

2 Dec 2008Deepak Shenoy1 min read

Quick Facts

What is "Be careful of investing in ELSS schemes" about?
What category is this article in?: Commentary
Who wrote this article?: Deepak Shenoy, Capitalmind's research team.
When was this article published?: Published 2 December 2008.
How long does this article take to read?: 1 min read
What topics does this article cover?: ELSS

I have just received a message that Mahindra Finsmart is offering higher commissions to get investment in four ELSS (Taxsaver) funds:

Kotak Tax Saver (5%)

ICICI Prudential Tax Plan (4.5%)

HDFC Long term Advantage Fund (3.5%)

Birla Tax Relief 96 (3.5%)

Now I don’t know how this is being paid - most schemes pay only 2.25% as “brokerage” to the agents, out of the entry load. But if larger amounts are being paid, then these schemes will end up paying these commissions out of investors’ funds (where else). It may be done slowly and over years - after all, you can’t withdraw your funds for three years - and will impact returns.

Be careful when putting your money in - I would essentially avoid all ELSS mutual funds for the time being - a PPF or NSCs are probably better bets.

I wish there was a no-load ELSS fund that simply invested in the Nifty, using futures, and put the rest of the money into liquid cash or call markets. This requires no brains - therefore very little management fees. Definitely needs some marketing muscle, though. And this is an industry that survives on commissions, so I doubt it will accede.