The product is priced at Rs 10 NAV of each scheme is announced separately. But if an investor finds that the NAV of an earlier year ELSS is lower than Rs 10,investors are hesitant to buy the new scheme fearing that this scheme would have the same fate as earlier one indicating a loss. Even if the NAV of earlier year ELSS is higher than Rs 10, no investor can invest in that earlier scheme. This is an anomalous situation.

MFs bank on past performance to sell the product, but consistency in past performance is difficult to achieve. For the same mutual fund, same fund manager, same equity market, same investment policies, fund performance may be different. Investors are always trying to assess whether the ELSS of the fund has done well or not in the past. The MF will emphasis the strong performance of one/two ELSS launched in the past but the investor would judge by the not so strong performance. This is a marketing dilemma of sorts. The problem seems to lie in taking a rigid view of timing the investment of funds at a certain point of time in the year, and importantly, pricing the scheme at a value unrelated to the worth of the underlying assets. In a simple amendment to the structuring of the scheme, existing ELSS can be made open-ended. Such a product will be available throughout the year at NAV related prices. This will ensure many advantages. Investors can choose to invest at any time of the year, or bunch investments in March as many do. The marketing rush that we see in January-March every year may reduce.

There will also be an additional benefit of averaging for a disciplined investor, who may choose to invest a certain sum of money every month in the scheme. He will buy more units when the price is less, and vice versa. But most importantly, the prices will be realistic, and long term disciplined investors will benefit from systematically participating in an all equity product. Operationally it would be great to have one scheme and one NAV. The costs of marketing the same scheme is expected be lower than doing so every year, the costs reduction ultimately benefits the investor.

From the point of liquidity, funds will be pleased to repurchase rather than list the scheme on an exchange. Inherent benefits of investing in equity through a mutual fund can be better appreciated and understood if ELSS is open-ended.

The second issue in marketing an ELSS is manner in which the tax concession operates. When the scheme was originally proposed, section 80CCB was specifically created for the purpose. The lower capital gains and additional benefits under Sections 54EA and 54EB make it attractive to invest in ELSS. But we now have ELSS bunched with all other products under Section 88, with a sub-ceiling of Rs 10,000, which leads to apples and oranges comparisons in the mind of investors. The treatment of fixed return products like PPF and a growth product like ELSS in the same tax basket, leads to investors benchmarking return from ELSS against the other products in the basket.

When individually created ELSS series provide lower return than other section 88 products, or exhibit higher volatility than the other virtually risk free products, there is a lack of interest in the ELSS.

The clamour for fixed return products amongst investors is a formidable marketing problem for mutual funds. Pitching ELSS with fixed return risk free products, is perhaps not the ideal way to induce investors to buy risky ELSS equity product.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.