MFs fear Rs 1.5 lakh crore outflows; seek Sebi help

Concerned that some budget proposals may hit mutual funds hard and result in outflows worth over Rs 1.5 lakh crore, industry body AMFI has asked regulator Sebi to take up the matter with the government for necessary intervention.

In a letter written to Sebi, the Association for Mutual Funds in India (AMFI) has also sought immediate measures to ensure that none of the tax proposals made in the Union Budget are brought in force with retrospective effect and asked the regulator to ensure deferring of long-term capital gains tax on debt-oriented MF schemes to the next financial year.

The fund houses have also appealed for restricting the new rules to close-ended debt schemes as against all non equity MF schemes as proposed, as per the AMFI letter addressed to Sebi Chairman U K Sinha.

The letter was sent last evening after mutual fund industry representatives called on Sinha on Friday last week in this regard.

In his budget proposals made on July 10, Finance Minister Arun Jaitley said that long-term capital gains tax on debt-oriented mutual funds will go up to 20 per cent from 10 per cent. The move is part of government's effort to bring parity with banks and other debt instruments.

Also, in the Budget 2014-15, the government has proposed to change the definition of 'long term' for debt mutual funds to 36 months from 12 months now.

Besides seeking the market regulator's intervention on these issues, AMFI has also taken up the matter with the Ministry of Finance.

"To have the long-term capital gain tax on closed ended debt schemes and not on open ended debt schemes, gold exchange traded funds and funds of funds etc, as this would render this asset class unattractive for investment. This in turn could impact the liquidity and development of corporate bonds," AMFI said.

It further said the holding period for the units to be eligible for long-term capital gains to 36 months from 12 months. The move would be applicable from next assessment year. Since the provisions of the new budget apply from April 1, they imply action of a retrospective nature.

"It is therefore our humble submissions that the revised provisions should be made effective for investments made from April 1, 2015," AMFI said.

AMFI said that the proposals in the budget would have a negative impact on the mutual fund industry as majority of assets under management comes under the debt category.

Also, Fixed Maturity Plans (FMP) and short-term bond funds are expected to be hit due to change in the capital gains definition.

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