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7 important budget expectations for the mutual fund industry


Introduce Debt Linked Savings Scheme (DLSS) to deepen the Indian Bond Market

Minimum of 80 % of funds under the category of Debt Linked Savings Scheme (DLSS) shall be invested in debentures and bonds of companies that are permissible under SEBI Regulations. DLSS should be introduced similar to Equity Linked Savings Scheme (ELSS) to generate potential returns for long term savings of retail investors into corporate bond markets which also helps boost the Indian Bond Markets.

Investments up to ₹1,50,000 under DLSS be eligible for tax benefit and subject to a lock in period of 5 years i.e., similar to bank FDs. However, a separate limit for tax benefit would be ideal. DLSS may mobilize small investors to participate in bond markets at low costs and at a lower risk as compared to Equity markets. Uniform Tax Treatment for Retirement / Pension Schemes of Mutual Funds and NPS

Under Section 80CCD tax deduction for Investment in Retirement Benefit / Pension Schemes offered by Mutual Funds up to ₹150,000 should be allowed within the maximum limit of 1.5 lakhs with additional deduction for investment up to ₹ 50,000 under section 80CCD. Also, the net total of employer’s and employee contribution should be taken into account for the benefit of tax calculation under section 80CCD.

Mutual Fund Units should be notified as ‘Specified Long-Term Assets’ qualifying for exemption on Long-Term Capital Gains under Sec. 54 EC

MF units that are redeemable after three years
, wherein the underlying investments are in equity or debt of ‘infrastructure sub-sector’ as specified by RBI, should also be included in the list of the specified long-term assets under Sec. 54EC. The investment shall have a lock-in period of three years to be eligible for exemption under Sec. 54EC as well as providing the option equity, or debt schemes based on each individual’s goals. Long term capital gains could be saved by the investor as it could be reinvested in other MF schemes along the same lines for sale of transactions of immovable property.

Taxation on Listed Debt Securities and Debt Mutual Funds to be aligned
There needs to be an aligned holding period for long term capital gains between investment in listed debt securities and debt mutual fund schemes. Investing in non-equity-oriented schemes where 65% or more is invested in long term debt securities could bring the common platform and pave the way for direct investment as mentioned in the above point. Parity between direct investment in listed debt instruments and investment in debt-oriented mutual fund schemes is the need of the hour.

Definition of Equity Oriented Funds (EOF) to be revised to include Equity Oriented “Fund of Funds”
“Equity Oriented Funds” (EOF) which invest predominantly, say 65% or more, in units of Equity Oriented Mutual Fund Schemes should be exempted from ‘tax on distributed income’ under section 115R. Also redemption of units in such schemes should be allowed same capital gains tax that is applicable to sale of listed equity securities / units of Equity Oriented Mutual Fund Schemes. Strong case for rationalization of taxation between Equity and Equity Oriented Fund of Funds. Reconsidering, FOFs investing 65% or more of their corpus in EOF should be reclassified as EOF’s.

Removal of Customs Duty on Gold: Reduce customs duty and provide a road map towards removing it completely
In the Indian gold market, high customs duty only distorts markets further as the current differential between the Indian gold prices and international gold price has widened to 15.5% in total. The way the math works is 12.5% customs duty + 3% GST leads to 15.5%.

This is a significant differential and augurs well for illicit gold imports and further distort gold markets significantly. We have seen Indian physical gold markets trade at a discount almost persistently and reasons cited by the experts are lower demand and illicit imports at the root cause. Such interventionist policy making ensures that India will never be at the center of the global gold markets despite being the largest consumer and will continue to remain a price taker. Such distortions make it difficult to channelize the hoard of India’s gold savings into circulation and thereby integrate the gold market with other financial markets. For instance, the recent introduction of TCS also leads to price distortions in the gold market.

Historically, while the authorities have pursued policies to de-emphasize gold and to suppress demand for gold, the balance sheet of households showed more gold on the asset side.

Need for parity in tax treatment in respect of Intra-scheme Switching of Units under MF Schemes
A new sub-section under Section 47 of the Income Tax Act, 1961 can be inserted, so that Switching of Units from Regular Plan to Direct Plan or vice-versa; and Growth Option to Dividend Option or vice-versa, within the SAME scheme of a mutual fund are not regarded as “Transfer” and hence, shall not be charged to capital gains.

Request to permit Insurance Companies to outsource the Fund Management activities to SEBI Registered MF AMCs
In my view all IRDA-registered Insurance companies should be permitted to outsource the Fund Management activities to SEBI Registered Mutual Fund Asset Management Companies (AMCs) and the AMCs should be permitted to provide Fund Management / Asset Management services to the Insurance companies by appropriate amendments to relevant SEBI & IRDA Regulations. This will help better development of resources.

(The author is the MD & CEO of Quantum Mutual Fund.)



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