Tax sops, policy overhaul planned to boost MF biz

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As the mutual fund industry struggles to mobilise funds, the Securities and Exchange Board of India (Sebi) on Thursday laid out a long-term policy framework and proposed tax incentives for investors to help channel household savings into the sector. The stock market regulator has also proposed tax benefits by way of creating a long-term investment product, mutual fund-linked retirement plan (MFLRP), with additional tax incentive of Rs 50,000.

The Sebi board announced some big bang tax incentives and non-tax related proposals for achieving sustainable growth of the mutual fund industry and mobilisation of household savings for the long-term growth of the economy.

Sebi has proposed additional tax incentive of Rs 50,000 for MFLRP under section 80C of Income-Tax Act.

“Alternatively, the limit of section 80C of the Income-Tax Act, 1961, may be enhanced from Rs 1 lakh to Rs 2 lakh to make mutual funds products (such as equity-linked saving scheme and MFLRP) as priority for investors among the different investment avenues. RGESS may also be brought under this enhanced limit,” Sebi said in a release issued after its board meeting in Delhi.

The Indian mutual fund sector, with 45 Sebi-licensed asset management companies (AMCs), hit record asset under management (AUM) of Rs 9.03 lakh crore at the end of January, raising the total corpus by 9.4 per cent, or Rs 77,400 crore in the first month of the new year. But the industry has seen huge erosion in its retail investor base in the past three years. Most of the money coming to AMCs is corporate deposit of their short-term money.

According to another Sebi proposal, the merger/consolidation of equity mutual funds schemes may not be treated as transfer and therefore, may be exempted from capital gain taxation similar to merger/consolidation of companies, Sebi said.

Non-tax incentive proposals for the mutual funds include EPFOs are allowed to invest up to 15 per cent of their corpus in equities and mutual funds. Further, Sebi has offered the members of EPFOs who are earning more than Rs 6,500 per month an option for a part of their corpus to be invested in a mutual fund product of their choice.

Sebi’s non-tax incentive proposal also recommended that all CPSEs be allowed to choose from any of the Sebi registered mutual funds for investing their surplus funds. At present, navratna and miniratna central public sector enterprises (CPSEs) are permitted to invest in public sector mutual funds regulated by Sebi.

Sebi has asked fund houses in running mutual fund schemes to contribute their own money in the form of 'seed capital' amounting to 1 per cent of the amount raised (subject to a maximum of Rs 50 lakh), while the minimum net worth requirement would also be increased from Rs 10 crore to Rs 50 crore, to weed out non-serious players.

In order to enhance transparency and improve the quality of the disclosures, it has been decided that asset under management (AUM) from different categories of schemes such as equity schemes, debt schemes, etc., AUM from B-15 cities, contribution of sponsor and its associates in AUM of schemes of their mutual fund, AUM garnered through sponsor group/ non-sponsor group distributors etc. are to be disclosed on monthly basis on respective website of AMCs and on consolidated basis on website of AMFI.

Debasish Mallick, MD & CEO, IDBI AMC, said, “These proposals are on expected lines for the industry, particularly the proposed tax breaks. We hope that the government will look favourably.”

“On EPFOs investing in equities and MFs, ministry of labour also has to take a call along with ministry of finance,” Mallick said.

These tax break for the mutual fund investments proposed may not be approved by the government during the vote-on-account next week as they would need parliamentary approvals, Mallick said.

The proposals relating to tax incentives, allowing EPFOs to invest in equities/mutual funds and allowing all CPSEs to invest their surplus fund in mutual funds will be sent to the government for its decision, Sebi said.

Sebi has also proposed tapping the distribution network of PSU banks to distribute schemes of all mutual funds along with online investment facility to tap the internet savvy users to invest in mutual funds.

“The burgeoning mobile-only internet users need to be tapped for direct distribution of mutual fund products,” Sebi said.

Sebi has also proposed printed literature on mutual funds in regional languages be compulsorily made available by mutual funds and investor awareness campaign in print and electronic media on mutual funds in regional languages to be introduced.

In order to improve transparency as well as encourage mutual funds to diligently participate in corporate governance of the investee companies and exercise their voting rights in the best interest of the unit holders, Sebi has proposed that voting data along with rationale supporting their decision (for, against or abstain) be disclosed on quarterly basis on their website. This is to be certified by auditor annually and reviewed by board of AMC and trustees.


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