Synopsis
In order to channelize long-term savings of retail investors, mutual funds should be allowed to launch pension-oriented MF schemes similar to 401(k) plan, which is a retirement savings plan offered by American employers that has tax advantages to the saver.
Ahead of Finance Minister Nirmala Sitharaman’s Budget presentation on Tuesday, here is a wish list from the mutual fund industry:
1) Uniformity in taxation of debt-oriented mutual funds and listed debt securities
At present, the minimum holding period in case of debt-oriented mutual funds (listed or unlisted) is 36 months to qualify it as long-term capital asset. However, for securities like bonds/debentures, government securities, derivatives, etc listed on a recognised stock exchange and zero coupon bonds, the minimum holding period is only 12 months to qualify it as long term capital asset.
We feel that the tax treatment for investment in debt-oriented mutual fund schemes and direct investment in listed debt securities should be harmonized and made uniform by reducing the minimum holding period in case of debt oriented mutual funds from 36 months to 12 months.
2) Introduce debt-linked savings scheme to help deepen bond market
To deepen the capital markets and encourage more investments through the mutual funds route, we feel the government should bring in DLSS (Debt-Linked Savings Scheme) which will have an additional deduction over and over the deduction available u/s 80C. It can have a lock in period of 5 years which will be in line with tax savings bank fixed deposits.
3) Revision in the definition of equity-oriented funds (EOF) to include equity-oriented ‘fund of fund’ scheme
Currently, FoF scheme offered by mutual funds carry debt taxation. A “fund of funds” is a mutual fund which invests in the schemes of other mutual funds rather than directly investing in shares, bonds, etc. We feel that the tax treatment in case of equity FoF schemes should be brought in line with equity-oriented mutual funds.
4) Mutual fund units should be notified as ‘Specified Long-Term Assets’ qualifying for exemption on LTCG under Sec. 54 EC
Mutual fund units should be notified as ‘Specified Long-Term Assets’ qualifying for exemption on LTCG under section 54EC. Section 54EC provides tax exemption on long-term capital gains if the gains are invested in ‘Specified Long-Term Assets’ which are redeemable after three years.
5) To allow AMCs to launch pension-oriented mutual fund schemes similar to 401(k) plan for retirement
In order to channelize long-term savings of retail investors, mutual funds should be allowed to launch pension-oriented MF schemes similar to 401(k) plan, which is a retirement savings plan offered by American employers that has tax advantages to the saver. The employee who signs up for a 401(k) agrees to have a percentage of their salary paid directly into an investment account.
(The author, Sanjay Shah, is Chairman & Managing Director, Prudent Corporate Advisory Services Limited. Views are his own)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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SynopsisIn order to channelize long-term savings of retail investors, mutual funds should be allowed to launch pension-oriented MF schemes similar to 401(k) plan, which is a retirement savings plan offered by American employers that has tax advantages to the saver. Ahead of Finance Minister Nirmala Sitharaman’s Budget presentation on Tuesday, here is a wish list from the mutual fund industry: 1) Uniformity in taxation of debt-oriented mutual funds and listed debt securitiesAt present, the minimum holding period in case of debt-oriented mutual funds (listed or unlisted) is 36 months to qualify it as long-term capital asset. However, for securities like bonds/debentures, government securities, derivatives, etc listed on a recognised stock exchange and zero coupon bonds, the minimum holding period is only 12 months to qualify it as long term capital asset. We feel that the tax treatment for investment in debt-oriented mutual fund schemes and direct investment in listed debt securities should be harmonized and made uniform by reducing the minimum holding period in case of debt oriented mutual funds from 36 months to 12 months. 2) Introduce debt-linked savings scheme to help deepen bond marketTo deepen the capital markets and encourage more investments through the mutual funds route, we feel the government should bring in DLSS (Debt-Linked Savings Scheme) which will have an additional deduction over and over the deduction available u/s 80C. It can have a lock in period of 5 years which will be in line with tax savings bank fixed deposits. 3) Revision in the definition of equity-oriented funds (EOF) to include equity-oriented ‘fund of fund’ schemeCurrently, FoF scheme offered by mutual funds carry debt taxation. A “fund of funds” is a mutual fund which invests in the schemes of other mutual funds rather than directly investing in shares, bonds, etc. We feel that the tax treatment in case of equity FoF schemes should be brought in line with equity-oriented mutual funds. 4) Mutual fund units should be notified as ‘Specified Long-Term Assets’ qualifying for exemption on LTCG under Sec. 54 ECMutual fund units should be notified as ‘Specified Long-Term Assets’ qualifying for exemption on LTCG under section 54EC. Section 54EC provides tax exemption on long-term capital gains if the gains are invested in ‘Specified Long-Term Assets’ which are redeemable after three years. 5) To allow AMCs to launch pension-oriented mutual fund schemes similar to 401(k) plan for retirementIn order to channelize long-term savings of retail investors, mutual funds should be allowed to launch pension-oriented MF schemes similar to 401(k) plan, which is a retirement savings plan offered by American employers that has tax advantages to the saver. The employee who signs up for a 401(k) agrees to have a percentage of their salary paid directly into an investment account. (The author, Sanjay Shah, is Chairman & Managing Director, Prudent Corporate Advisory Services Limited. Views are his own)(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)(What’s moving Sensex and Nifty Track latest market news, stock tips and expert advice on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds.) Download The Economic Times News App to get Daily Market Updates & Live Business News….morelessPick the best stocks for yourself Powered by 3 mins read4 mins read7 mins read4 mins read4 mins read4 mins read3 mins read4 mins read