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He expects the Finance Minister to announce higher tax incentive of Rs 1 lakh for investors of RGESS.
In an interview with Neha Pandey Deoras, Sathe says that the mutual fund industry has witnessed inflow from new investors though the margins are squeezed at 0.16-0.21% as opposed to 4% being paid to distributors. Excerpts -
LIC Nomura Mutual Fund has launched Rajiv Gandhi Equity Savings Scheme (RGESS) series I. How much is the company expecting to collect through this scheme?
We are expecting to collect at least Rs 100 crore from RGESS Series 1, which will close on February 25, 2013.
How many new customers do you expect to get from RGESS?
We expect to rope in at least 20,000 new customers.
Given that RGESS was launched only last week, a little late in the tax season. What is your marketing strategy for the scheme and has the strategy started paying off? How many customers have you got who want to invest or enquire about RGESS?
It is observed that meticulous tax planning is done at the beginning of the year only by taxpayers in high income bracket. RGESS is not a scheme for them, it is for low / middle income earners. February and March can be the months of their tax payments. We are therefore, targeting all taxpayers with gross income of less than Rs 10 lakh. We are actively associated with print and television media to increase awareness about the scheme. We have canopy, stalls at different places. Our Relationship Managers are moving from office to office distributing single pagers or pamphlets to the prospective investors. We have tied up with a number of Depository Participants for opening demat account at low or no cost.
The strategy has started paying off. From the available reports more than 1,000 new customers have contributed over Rs 1 crore on the day of launch.
The industry wants the government to modify tax incentive to make RGESS more attractive. What kind of modification is expected?
Finance Minister has also said that the scheme will be made more investor friendly and additional benefits will be introduced. We are expecting the upper limit for tax relief to go up from Rs 50,000 to Rs 1 lakh during the fiscal year 2013-14 and investors of current year may be allowed to enjoy tax relief for their contributions made next year as well.
As most feel that the tax incentives under RGESS are not enough, would you advise equity linked saving scheme (ELSS) over RGESS to new investors?
RGESS contribution is exclusively under Section 80CCG, while the contribution under ELSS is covered under Section 80C along with a number of other investment instruments like life insurance, National Saving Certificate, Public Provident Fund, Employee Provident Fund and so on. Investors with income exceeding Rs 10 lakh do not get tax relief under Section 80CCG. If an investor is entitled for tax relief under RGESS it is advisable that he avails it of first and then looks at ELSS for investment.
What is your market outlook for the coming fiscal?
Market outlook will be positive during the next fiscal year and post budget the Sensex should move upwards.
Have retail investors started coming back to equity schemes? Or, will the outflow continue for some more time?
As Sensex started moving up, investors in equity mutual fund schemes have actually started booking profits or reducing losses by exiting from equity investment. Even in January 2013 there has been an outflow of over Rs 4,000 crore from the equity schemes. Outflow is likely to continue for some more time till the Sensex stabilises at about 20,000 level.
How helpful will RGESS be in getting back investors to equity schemes?
RGESS is only for new investors and as such it has a limited purpose.
What is the trend in the mutual fund space?
Although there have been redemptions, mutual fund industry has also witnessed inflow from new investors. There has been stiff competition and margins are squeezed. While distributors may get about 4 per cent incentive, margins of mutual funds range between 0.16% and 0.21%, which is too low.
What is your target group and target AUM for the newly modified product with insurance cover, ULIS? Why should one opt for it?
Target group for ULIS are individuals aged between 12 and 60, as insurance cover up to Rs 15 lakh is available without hassles of medical / special reports. We have a target of at least 1 lakh new customers. ULIS is attractive because of its better features like free accident cover, higher maturity bonus, lower premium, no exit load.
You had plans to float an offshore index-linked exchange traded fund (ETF). When are you launching it?
The offshore index-linked ETF will be launched during the next fiscal year since at present we already have 12 fixed maturity plans (FMPs) under our sleeve approved by SEBI and RGESS will be marketed till end of February, 2013.
