Kotak Mutual Fund to launch ELSS

Kotak Mutual Fund (KMF) is gearing up to launch an equity-linked savings scheme (ELSS) to cash in on the new tax planning guidelines.

The new guidelines announced by finance minister P Chidambaram allows tax exemption on investments in ELSS up to Rs 1 lakh. Earlier, the exemption limit for ELSS was Rs 10,000.

Besides, ELSS, Kotak is likely to launch an arbitrage fund, which could well be the third of its kind in the country.

The president of Kotak Mahindra Asset Management Company, Nilesh Shah, feels that ELSS going to be a major growth area for mutual funds in coming years.

He was talking to reporters at the launch of Kotak Contra, a diversified equity fund that will concentrate on undervalued stocks.

According to Shah, the ELSS plan is likely to hit the market in the third quarter of the current financial year.

This will be first ELSS from KMF. We are now working on this fund. ELSS going to be a great investment opportunity for salaried individuals looking for tax planning as no other tax planning device could match ELSS in terms of returns. Due to 3 years lock in period the fund managers get more flexibility to churn the portfolio," he said.

Incidentally, ELSS is generally a closed-ended diversified equity fund. Shah said Kotak Mutual is launching the new equity schemes to catch up with the industry benchmark of proportion of equity plans in the total portfolio.

He said Kotak would like to raise the level of equity to 22-23 per cent of the total asset under management (AUM) from the current level of 18 per cent. KMF presently have AUM of Rs 7,497 crore.

The equity portfolio is around Rs 1,400 crore. According to Shah, KMF is likely to come out with the arbitrage fund before the proposed ELSS.

"As of now the arbitrage fund will be launched before other equity products," added him. Incidentally, there are only two arbitrage fund in the MF mart from Jm Mutual and Prudential ICICI.