SEBI in its Board meeting held on 13th February has approved a Long term policy for Mutual Funds in India and also proposed Tax and Non – Tax incentives. We at Advisorkhoj believe, that if implemented, this could become a gamechanger for the MF industry and thus Congratulate SEBI for this.
Long Term Policy for Mutual Funds in India
SEBI Board has approved a Long Term Policy for Mutual Funds in India. The long term policy includes all aspects including enhancing the reach and promoting financial inclusion, tax treatment, obligation of various stakeholders.
The public policy objective of this is to achieve sustainable growth of the mutual fund industry and mobilisation of household savings for the growth of the economy. The recommendation of long term policy has been bifurcated in two buckets - Tax incentive related proposals and non-tax related proposals. Let us examine both –
Some of the Tax related proposals
A long term product such as Mutual Fund Linked Retirement Plan (MFLRP) with additional tax incentive of Rs.50,000/- under 80C of Income Tax Act may be introduced. The objective of giving tax benefits is to incentivize and channelize savings into long term investment products. Schemes offering tax benefits are a powerful approach all over the world that helps channelize household savings into long term investment products.
Alternatively, the limit of section 80C of the Income Tax Act, 1961, may be enhanced from INR 1.00 lakh to INR 2.00 lakh to make mutual funds products (ELSS, MFLRP etc.) as priority for investors among the different investment avenues. RGESS may also be brought under this enhanced limit.
Similar to merger/consolidation of companies, the merger/consolidation of equity mutual funds schemes also may not be treated as transfer and therefore, may be exempted from capital gain taxation.
Some of the Non-Tax incentive proposals
In the long run, the objective is to ensure that Mutual Funds achieve a reasonable size and play an important role in achieving the objective of financial inclusion while further enhancing the transparency so that investors can take informed decision. Towards this objective the following has been decided –
Capital Adequacy i.e. minimum networth of the Asset Management Companies (AMC) be increased to INR 50.00 crores.
The concept of seed capital to be introduced i.e. 1% of the amount raised (subject to a maximum of Rs.50.00 lacs) to be invested by AMCs in all the open ended schemes during its life time.
EPFOs be allowed to invest upto 15% of their corpus in Equities and Mutual Funds. Further, the members of EPFOs who are earning more than INR6500 per month be offered an option for a part of their corpus to be invested in a Mutual Fund product of their choice.
(v) In order to enhance transparency and improve the quality of the disclosures, it has been decided that 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.
Towards achieving the goal of financial inclusion, a gradual approach to be taken such that initially the banked population of the country may be targeted with respect to Mutual Funds investing. SEBI will work towards achieving the goal that the basics of capital markets and financial planning may be introduced as core curriculum in schools and colleges.
Printed literature on Mutual Funds in regional languages be mandatorily made available by Mutual Funds. Investor awareness campaign in print and electronic media on Mutual Funds in regional languages to be introduced.
In order to develop and enhance the distribution network PSU banks may be encouraged to distribute schemes of all Mutual Funds. Online investment facility need to be enhanced to tap the internet savvy users to invest in Mutual Funds.
Also, the burgeoning mobile-only internet users need to be tapped for direct distribution of Mutual Funds products.
The proposals relating to tax incentives, allowing EPFO 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. (Source: SEBI Website)