The new guidelines for investing in the Equity Linked Savings Schemes, or what is otherwise known as tax-saving funds, have been notified by the government.

Although the babus who framed the rules can't be faulted for what seem to be unnecessary changes to the structure of ELSS (notifications that make little sense come out at very frequent intervals), what comes as a surprise is the utter lack of clarity with respect to the treatments of investors who put money in such schemes in this financial year.

Here are some of the changes that are being proposed - (Read the complete notification)

• The ELSS will no longer be open ended. It will be a plan with a fixed tenure of 10 years
• For investments and repurchase, the plan will be open for a minimum period of one month in the first year, and three months in all subsequent years
• The repurchase price will be announced after an initial period of one year; post that the repurchase price will be declared every six months
• After three years (when the lock in for the units comes to an end), the scheme will announce the repurchase price every month

The babus are best placed to explain the rationale for such a structure. At Personalfn, we are not able to find one solid reason for this.

Issues on which the government or the regulator should issue clarifications -

• Implications for investors who put money in the existing "open ended" ELSS schemes in this financial year (prior to the date of notification) to take benefit of the new Section 80C.
• Many investors today invest in equity schemes in small amounts at regular intervals (what is otherwise known as a Systematic Investment Plan - SIP). What happens to the cheques which have been issued by investors prior to the date of notification but are to be banked only post that.
• The status of the investment made in the new "open ended" ELSS schemes floated during the financial year. Of course, the argument can be made that the AMCs should not have launched the schemes as the new guidelines were awaited. But then why did the regulator permit such a scheme to be floated? Or for that matter, why didn't the advertisements for these New Fund Offers clearly mention that the tax benefit of investing in these schemes is yet to be notified
• From an industry perspective, the distributors have already been paid commissions on the monies that have been mobilised for these schemes so far this year. Some funds have paid distributors a larger one time fee, factoring in the trail commissions for the two additional years the monies is locked in for. The investors of course have paid the entry loads on the scheme. In case the new guidelines were to remain as they are, how will these transactions get undone? Who will bear the loss?

Another interesting fall out of this notification is that the investor will initially get to invest in schemes which do not have any track record! Presently of course, there are 'open ended' schemes which have been in existence for several years now (some as old as 10 years); this provides the investor with an additional input in his decision making process. But, try and explain this to the law makers.

What is interesting to note is that the Union Budget for a financial year is presented a month in advance. Factoring that in, it has taken the babus nine months to notify the new guidelines. In the interim, about Rs 1,000 crores (Rs 10 billion) has been mobilised in such schemes. And of course, thousands of retail investors are left worried with the status of their investments.