There is another challenge before the mutual funds in India as now they will have to compete against the government’s similar product under the tax saving instruments’ category. In the last Union Budget, the Finance Minister had proposed ‘Rajeev Gandhi Equity Saving Scheme (RGESS). Subsequently, the Securities & Exchange Board of India (SEBI) had proposed routing of the scheme through mutual funds.
After the Finance Ministry has declined SEBI’s proposal, now it is time for the mutual funds to pull up their socks to stay up against the new challenge of competing with RGESS. The mutual funds offer Equity Linked Saving Scheme (ELSS) under which the individual investor gets exemption on income tax.
When the investment scheme and lock-in period (3 years) is largely similar in both the case, there is a threat to both from each other.
The advantage of RGESS is saving on tax of 50% on investment up to Rs. 50,000. It is quite a phenomenal as even if the scheme fails to generate handsome returns for investor, the tax advantage is sufficient to cover up and attract the investors. Another advantage on RGESS’ side is the promotion through the Ministry of Finance. The tag of government is another ‘big yes’ as still the small investors have better comfort level while putting in their money as investment into a scheme coming from the Government of India.
The mystery box still contains a question that how the government will mobilise the scheme. Having a large network of various government agencies in every nook and corner of the country, it might emerge with a large and dependable distribution system which could be public sector banks and post offices.
These are certainly areas of concern for the fund houses who don’t have unlimited resources and capacity to reach out to a big investor class.
What might work in favour of the funds is the limitations of RGESS. The scheme will allow 50% deduction up to Rs. 50,000 only. Under Section 80 (C), the investor can save tax on taxable income up to Rs. 1 lakh. The customer servicing of the product will be another key element detrimental in the success of RGESS. The professional management of the fund and brand image will be a plus point for the ELSS while competing against RGESS.
What lies beneath for the investors is a win-win situation from this competition. When the small investors will have the advantage of RGESS, mutual funds are also likely to come up with a fair line of operations and offerings for the investors.
MF UPDATE
IDFC announces dividend under IDFC Dynamic Bond Fund
IDFC MF has announced dividend under IDFC Dynamic Bond Fund - Plan B, on the face value of Rs. 10 per unit. The quantum of dividend will be Rs. 0.3875 per unit subject to availability of distributable surplus. IDFC Dynamic Bond Fund - Plan B seeks to generate optimal returns with high liquidity by active management of the portfolio, by investing in the high quality money market and debt instruments. The record date for dividend distribution has been fixed as 31st May 2012.
Religare announces dividend for its scheme
Religare MF has announced dividend under the discretionary dividend option of Religare Credit Opportunities Fund, on the face value of Rs. 10 per unit. The quantum of dividend for distribution will be Rs. 0.2935 per unit for Individuals & HUFs and Rs. 0.2516 per unit for others. The record date for dividend distribution is 31st May 2012.
Axis announces change in fundamental attributes
Axis MF has announced changes to plans and options of Axis Constant Maturity 10 Year Fund, an open ended gilt scheme. Accordingly, the quarterly dividend option under the scheme would be converted to a regular dividend option wherein dividend would be declared on monthly basis subject to availability of distributable surplus (25th of every month). Regular dividend option would offer payout & reinvestment as sub-options. Investors will have an option to exit without paying any exit load between 28th May 2012 and 27th June 2012.
AIG announces change in minimum application amount under its scheme
AIG MF has announced to change the minimum application amount under AIG Short Term Fund - Institutional Plan, an open ended income scheme, with effect from 1st June 2012. Accordingly, the revised minimum application amount will be Rs.2 crore.
Axis launches Axis Banking Debt Fund
Axis MF has launched a new scheme named as Axis Banking Debt Fund, an open ended debt scheme. The face value of the scheme is Rs. 1000 per unit. The new issue will be open for subscription from 30th May 2012 and closes on 7th June 2012. The investment objective of the scheme is to generate stable returns by investing predominantly in debt and money market instruments issued by banks. The minimum application amount is Rs. 5000 and in multiples of Rs. 10 thereafter. The performance of the scheme will be benchmarked against CRISIL Short Term Bond Fund Index and will be managed by Ninad Deshpande and Sivakumar.
SBI revises exit load under its three schemes
SBI MF has announced to revise the exit load structure under SBI Short Horizon Debt fund - Short Term Fund, SBI Magnum Income Fund - Floating Rate Plan - Long Term Plan and SBI Magnum Income Fund, with effect from 1st June 2012. Accordingly, an exit load of 0.25% will be charged if units are redeemed or switched out within 3 months from the date of allotment for SBI Short Horizon Debt fund - Short Term Fund and 0.50% will be charged if units are redeemed or switched out within 1 year from the date of allotment for SBI Magnum Income Fund - Floating Rate Plan - Long Term Plan. Furthermore, under SBI Magnum Income Fund the exit load of 1% will be charged if units are redeemed or switched out within 1 year from the date of allotment.
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