This is the best time to invest in ELSS mutual funds: Gautam Sinha Roy of Motilal Oswal AMC
“I would ask investors to keep the faith in the asset class," says Gautam Sinha Roy.
This is the time for last minute ELSS investments but LTCG Tax is at play this year. What all has changed for ELSSs since LTCG was re-introduced?
The LTCG tax has created a slight disadvantage for the mutual fund product compared to ULIPs but it doesn’t mean that mutual funds are bad. There are mutual funds which have been great performers. Investors need to keep this in mind that even after the extra tax, the performance of ELSS schemes will be better in the long run. The mutual fund product has better transparency, low cost and better performance, so I don’t think LTCG makes their case weak.
After the correction in the equity market last year, ELSS category is offering negative returns in one year. Do you think this will have any impact on number of investors saving taxes via ELSSs?
There are two things. One, after the correction in NAVs, the hot money that was chasing the performance is not coming in. Secondly, because of the correction, you are getting more units on lower prices, so lesser amount of money is coming. Thirdly, last year was an exceptional year, so comparing last year to this year wouldn’t be a fair comparison. From a very high base, things are normalising this year. Last year we saw the euphoria getting too high with the markets touching new highs every day, but on a general basis, I think the AUM dip is understandable.
Many investors amass a lot of ELSSs over the years either because of the bad performance of schemes or because their scheme is not a top quartile scheme any more. How many ELSSs should investors have in his portfolio?
The process of accumulating many ELSSs over the years is fallacious. This is not the way one should go about this. One should be happy to hold two schemes maximum. If you have one scheme and that performs badly then you are stuck, so have two but make sure that they are divergent. It doesn’t make sense to have two similar schemes. Say, if you have a growth schemes, make sure the other one is a value scheme. Empirical studies have proved that if you diversify by being with a growth and a value manager, you should do fine.
Investors should look at the performance of the schemes but equities are a long-term investment vehicle, so looking at the short-term performance can be counterproductive. Choose a scheme with a good track-record, managed by a good fund manager, read about their philosophy and strategies. The sheer nature of equities is volatile so you have to think long term. Select your schemes and managers on the basis of long-term performance.
Your scheme, Motilal Oswal Long Term Equity Fund is one of the top performers in the ELSS category. What are the strategies that you follow while picking stocks? Is it any different from the general equity schemes?
The overall strategy remains the same but the good part is our ELSS scheme hasn’t grown disproportionately in size. It is around Rs 1,100-1,200 crore at this point. So, the flexibility of choosing mid- and small cap stocks is higher. We had benefited a lot from good selection of mid and small caps till last year when they were doing well. The flexibility to invest across market caps and categories also benefits the scheme.
The three-year lock in ELSSs also helps the fund manager in stock picking in terms of the confidence of the manager. Because you know that incrementally, you are certain that the money is going to be there and will not move away on the basis of short-term calls.
What is your advice to ELSS investors this year after a volatile 2018?
I would ask investors to keep the faith in the asset class. Last year, we have seen markets correcting and this year there are opportunities. Being multi cap schemes, I think ELSSs will benefit from the correction. This is the best time to invest In ELSS for sure. Don’t look at the past one year’s performance. Among different classes in equity, I think multi cap category is the best to invest at this point.