All confusion on ELSS to be over in next two weeks: Amfi

Mumbai, Nov 13 | Updated: Nov 14 2005, 05:30am hrs
The clarification on the issue of equity linked saving schemes (ELSS) by the Income-Tax (I-T) department may have put at rest all the confusion that was prevailing in the minds of ELSS investors, but the imbrolgio over this will be solved completely only in the next two weeks. Whether the mutual funds (MFs) will be allowed to float open-ended schemes or not is an issue will be addressed shortly as the amendment to the November 3 notification will take another two weeks.

AP Kurian, chairman, Association of Mutual Funds in India (Amfi) told FE, "Now there is no confusion with respect to ELSS schemes. All the tax benefits are intact and investors who invested in ELSS schemes floated by various asset management companies (AMCs) during April 1-November 3, 2005 will continue to enjoy the tax benefit under 80 (c) of the I-T Act. We are still in consultation with the ministry on certain other issues. The confusion with respect to the nature of the schemes whether open ended/close ended will also come to an end soon as the amendments in this respect will be carried out within next two weeks." As per the clarification issued on Friday, all the existing schemes will have the benefit of section 80 C.

This will benefit lakhs of investors across the country who have invested close to Rs 3,100 crore in 22 ELSS schemes floated by various mutual funds (MFs).

The MF industry sources said, the confusion was created as the November 3 notification issued by the Central Board of Direct Taxes (CBDT) changing the norms of investing in an ELSS was based on the earlier circular of 1992 when all the schemes were closed ended and there was no concept of open ended schemes.

After 1992, CBDT has issued another circular in 1998 with respect to the tax treatment being given to investment in ELSS.

MF industry sources said, after insurance companies launched unit linked insurance policies (ULIP) which became more popular, MFs were in search of a product which can counter the ULIPs' growing popularity and divert the fund flows to the MF industry.

The budgetary announcement of regrouping all the tax savings instruments including ELSS under the Rs 1 lakh category (earlier exemption upto Rs 10,000 under ELSS was allowed), linking the schemes with free insurance and good performance shown by the secondary market worked wonders for the MF industry.