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INDIA
BUSINESS WORLD -
NOVEMBER 2005
THE MONTH THAT WAS
MFS' EQUITY-LINKED PLANS NOW TO BE CLOSE ENDED
The finance ministry
has changed the rules of the game for investment in tax saving
ELSS making entry and exits difficult. New ELSS plans launched
by mutual fund houses will have to be closeended schemes that
would have to be wound up 10 years after allotment of units.
Also, investors
may not have the luxury of timing entry into a plan after
watching the scheme's performance in the market. This is because
fund houses can announce the repurchase price only a year
after the allotment of units and thereafter on half-yearly
basis.
Investors would
be able to invest in an ongoing plan only when the scheme
opens for limited period during the year. Exits would be very
difficult and systematic investment plans (SIP) of mutual
funds could be adversely affected.
A Central Board of Direct Taxes (CBDT) notification today
said the schemes could be wound up before completion of the
stipulated 10 years if 90% or more of the units are repurchased
before completion 10 years of the plan. Tax saving schemes
launched by Kotak MF and Reliance may be immediately hit by
CBDT notification. Reliance tax saving ELSS scheme is already
listed and the fund house has been publishing the fund's net
asset value as well as resale and repurchase price. Kotak
ELSS closed for subscription at the end of last month and
was due to be listed only later this month.
Schemes launched prior to April 1, 2005 have been exempted
from this requirement.
The notification further states that ELSS plans shall be open
for a minimum of one month in 2005-06 and for a minimum of
three months during the subsequent years.
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