Your Money: Need A Debt-Linked Savings Scheme Now

The popularity of ELSS shows the combination of tax benefit and decent performance works well.

When we discuss categories of mutual funds, we discuss parameters of performance, quantum of funds under management, investment rationale and future expectations. Today, let us discuss from another perspective. And that is, the number of investors served by the different fund categories.

Since we do not have the data on the exact number of investors, we will take the number of folios as proxy. There are 13.6 crore folios in the MF industry, and little more than 3 crore unique investors. This ratio of around 3:13 gives you an indication of the number of investors corresponding to the number of folios in a category.

Popularity of ELSS
Of the many categories of funds served by the MF industry, the one that is most popular, in terms of number of folios, is Equity-Linked Savings Scheme (ELSS). As on end of August 2022, there are as many as 1.43 crore folios in ELSS. The reason is obvious: it is a tax planning tool, under Section 80C of Income Tax Act. It provides equity-related growth over an adequate horizon. This attracts many investors. The most popular category is followed by large-cap with 1.28 crore folios, sectoral / thematic with 1.25 crore folios and flexi-cap with 1.23 crore. Debt funds do not have as many folios as the assets under management (AUM) includes institutional or corporate investors, where the quantum in one folio is on the higher side.

AUM in funds
The highest AUM is in liquid funds —Rs 4.2 trillion —as it includes corporate investors. Then comes large-cap and flexi-cap funds, with just under Rs 2.4 trillion in each of these categories. The ELSS funds have a decent quantum, about `1.5 trillion. For a perspective, the AUM of the industry is Rs 39.5 trillion.

Now that we know ELSS funds cater to the most number of investors, it is interesting to see the performance of this category.

Performance of funds
We will look at the basket average returns, to represent the performance of that category of funds. The data pertain to regular, i.e., non-direct plans. Till October 6, 2022, last one-year average return in ELSS is 0.14%, last three years is 18.2% annualised, five years is 11.1% annualised and 10 years is 14.6% annualised. And yes, these are good numbers. ELSS funds have outperformed large-cap and flexi-cap funds.

Till October 6, 2022, large-cap funds have delivered negative 1.6% over the last one year, 15.4% over the last three years annualised, 10.6% over last five years annualised and 12.7% over last ten years annualised. Over the same time frames, flexi-cap funds have delivered, as basket average, negative 0.4%, 17.9%, 11.5% and 14% respectively. Hence, ELSS funds, serving more investors, have beneficially served them.

This is not to say ELSS has been the best performing category. Mid-cap and small-cap funds have outperformed ELSS. Over the time frames mentioned above, mid-cap funds have delivered 4%, 25.5%, 13.2% and 18% respectively, annualised. For small-cap funds, the returns are 5.1%, 32.1%, 14.3% and 18.9%, respectively over the time periods.
In terms of number of folios, apart from the usual equity-oriented fund categories mentioned above, ETFs are gaining popularity. Along with the spread of digital mode and number of demat accounts having crossed 10 crore, ETFs now have 1.15 crore folios. However, this number is across multiple fund descriptions. ETFs are mostly equity oriented funds following an index, but there are a few debt oriented ETFs.

Mutual funds are meant for the masses, though corporates do invest. For gauging the relative importance of a fund category, though AUM is primary, number of people served is also important. The popularity of ELSS shows the combination of tax benefit and decent performance works well. From this perspective, there is a case for Debt-Linked Savings Scheme as well, with defined parameters on duration and credit risk.


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