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S. Vaidya Nathan

THIS is time of the year when investment for tax saving purposes is at significant levels. But tax savings schemes of mutual funds seem to be totally out of the reckoning, not only in the last two months but for much of 2001-02 as well. This is despite the stock market being depressed over this period.

Despite February 2002 being the homestretch for the tax-savings season, these schemes had sales of just Rs 2 crore. In fact, the redemption levels were much higher, at Rs 12 crore. As a result, this category of schemes witnessed outflows of Rs 10 crore at a time of the year when one would expect inflows.

These numbers are based on the monthly report for January 2002 put out by the Association of Mutual Funds of India (AMFI). The assets under management in tax savings schemes are Rs 2,036 crore, accounting for less than 2 per cent of the total assets under management. The total assets as of end January were Rs 1,04,115 crore.

The redemption pressure may be driven by the improvement in equity prices, as well as an attempt by investors to get out of equities after the bitter experience of 2000 and 2001. But the most proximate cause may well be a lack of interest in equities and in equity schemes, in particular.

Less than a handful of tax schemes have done well over a period of time. Most of the schemes launched in the 1994-1999 period have proved value-depleting. The spill-over effect of the indifferent performance of a few pure growth schemes also appears to have had a negative influence on investor attitude towards tax savings schemes, which have to invest 90 per cent in equities.

Tax savings schemes ought not to be completely ignored. It may be better to invest a small portion in such schemes, though their number is severely limited by the poor showing over the years. Zurich India Tax Saver, Taxshield and Alliance Capital Tax Relief are schemes that have done well over a fairly long period. But only investors with a penchant for risk need to look at such schemes.

IL&FS Index Funds: IL&FS Mutual Fund is to introduce an index scheme, IL&FS Index Fund, with options to invest in schemes that track the S&P CNX Nifty Index and the BSE Sensitive Index. The fund is also offering facilities to pre-set growth targets with trigger options. The minimum investment amount is Rs 5,000.

IL&FS Funds: IL&FS Mutual Fund has collected a corpus of Rs 62 crore under its two new schemes — IL&FS Gilt Fund and IL&FS Short Term Plan.

US-64 prices: The repurchase price for unit holdings of up to 5,000 units (enhanced from 3,000 units) will be Rs 10.70 per unit in March 2003 under the Special Liquidity Package.

This is a rise of 10 paise over the January 2002 levels. The package was offered from August 2001 at Rs 10 per unit and is due to end in May 2003 at Rs 12 per unit. From March 1, 2002, the sale price under the package would be Rs 10.70 per unit.

For holdings in excess of 5,000 units, a repurchase facility linked to the NAV is available from January 2, 2001. For less than 5,000 units, the assured repurchase price for May 2002 is Rs 12 per unit.

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