7 Important Fiscal Expectations for the Mutual Fund Industry
At least 80% of funds in the Debt Linked Savings Scheme (DLSS) category must be invested in debentures and corporate bonds permitted by SEBI regulations. The DLSS is expected to be introduced in the same manner as the Equity Linked Savings Scheme (ELSS) to generate potential returns for the long-term savings of retail investors in the corporate bond markets, which also helps boost Indian bond markets.
Investments up to ₹1,50,000 under DLSS are eligible for a tax benefit and subject to a 5-year lock-up period, i.e. similar to bank FDs. However, a separate limit for the tax benefit would be ideal. DLSSs can entice retail investors to participate in bond markets at lower cost and lower risk than equity markets. Uniform tax treatment for mutual fund and NRP pensions/pension plans
Under Section 80CCD, tax deduction for investment in superannuation schemes/retirement schemes offered by mutual funds up to ₹150,000 should be allowed within the maximum limit of 1.5 lakhs with a additional deduction for investments up to ₹50,000 under Section 80CCD. In addition, the net total of employer and employee contributions must be taken into account for the benefit of the tax calculation under Section 80CCD.
Mutual fund shares must be notified as “specified long-term assets” eligible for the long-term capital gains exemption under Sec. 54 EC
FCP units redeemable after three years
, in which the underlying investments are in equity or debt of the “infrastructure sub-sector” as specified by the RBI, must also be included in the list of specified long-lived assets under Sec. 54CE. The investment must have a lock-up period of three years to qualify for an exemption under Sec. 54EC as well as the provision of optional shares or debt programs based on each individual’s goals. Long-term capital gains could be saved by the investor as they could be reinvested in other MF programs of the same type for the sale of real estate transactions.
Taxation of listed debt securities and mutual funds to be aligned
There must be an aligned holding period for long-term capital gains between investing in listed debt securities and debt mutual funds. 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 investing, as mentioned in the point above. Parity between direct investments in listed debt securities and investments in debt-focused mutual funds is the need of the hour.
The definition of equity-oriented funds (EOF) should be revised to include equity-oriented “funds of funds”
“Equity-oriented funds” (EOFs) that invest primarily, say 65% or more, in equity-oriented mutual fund units should be exempt from “tax on distributed income” under the 115R. In addition, the redemption of units in such plans should be permitted the same capital gains tax applicable to the sale of publicly traded equity securities/equity-oriented mutual fund units. Solid arguments in favor of streamlining taxation between equity funds of funds and equity-oriented funds of funds. On reconsideration, FOFs investing 65% or more of their corpus in EOF should be reclassified as EOF.
Elimination of tariffs on gold: reduce tariffs and provide a roadmap to eliminate them completely
In the Indian gold market, high tariffs are only further distorting the markets, as the current gap between Indian gold prices and the international gold price has widened to 15, 5% overall. The way the math works is that 12.5% customs duty + 3% GST leads to 15.5%.
This is a significant discrepancy and bodes well for illicit gold imports and to further distort gold markets significantly. We have seen Indian physical gold markets trading almost persistently at a discount and the reasons cited by experts are weaker demand and illicit imports at root. Such an interventionist policy ensures that India will never be at the center of the world gold markets, despite being the largest consumer, and will continue to remain a price taker. These distortions make it difficult to channel India’s gold savings treasury into circulation and thus the integration of the gold market with other financial markets. For example, the recent introduction of the TCS also leads to price distortions in the gold market.
Historically, as authorities pursued policies of de-emphasis on gold and suppression of demand for gold, household balance sheets showed more gold on the asset side.
Need for parity in tax treatment with respect to intra-plan exchange of units under MF plans
A new subsection under section 47 of the Income Tax Act 1961 may be inserted, so that the transfer of shares from the regular scheme to the direct scheme or vice-versa; and the growth option to the dividend option or vice versa, within the framework of the SAME of a mutual fund are not considered as a “transfer” and, therefore, should not be set off against the capital gains.
Application for authorization for insurance companies to outsource fund management activities to portfolio management companies registered with SEBI
In my view, all IRDA-registered insurance companies should be allowed to outsource fund management activities to SEBI-registered Mutual Fund Asset Management (AMC) companies and AMC should be permitted to provide fund management/asset management services to insurance companies through appropriate amendments. relevant SEBI and IRDA regulations. This will contribute to better resource development.
(The author is the Managing Director and CEO of Quantum Mutual Fund.)