MF group pitches for debt-linked saving schemes with tax benefits in Budget

Mutual funds industry body Amfi has requested the government to allow low cost debt-linked saving schemes, with tax benefits, to deepen bond market, and lower holding period in gold and commodity ETFs to one year from existing three years for LTCG purposes.

In its Budget proposals to the Finance Ministry, the industry body has also demanded that the government recognise mutual funds (MFs) as specified long-term assets, qualifying for Long-Term Capital Gains (LTCG), as well as bring ULIPs of life insurance companies and equity MF schemes on par.

The mutual fund body has also asked for dividend distribution tax (DDT) exemption for EPFO, NPS and insurance companies investing in MF schemes and pass-through status for income tax purpose to those Category III AIFs which make 65 per cent investments in listed equities.

"Amfi's suggestions have been in the Budget proposal list for a few years. We are hoping this time our long pending submissions get addressed, which would help take the Indian MF industry not only to the next level of growth but also help in contributing to making economy stronger, especially with deepening of bond market, making long term availability of funds for infrastructure growth, and reducing the fiscal deficit by shifting investments from pure gold to gold ETFs," Amfi Chief Executive N S Venkatesh said.

Some of the proposals are also aimed at bringing parity with comparable investment avenues and making mutual funds more retail investor friendly, he added.

The Association of Mutual Funds in India (Amfi) said that mutual funds should be allowed to introduce low-cost, lower-risk tax-exemption-linked debt-linked savings schemes (DLSS) on the lines of equity linked saving schemes (ELSS).

It further proposed that investments up to Rs 1.5 lakh under DLSS be eligible for tax benefit, subject to a lock in period of 5 years.

At present, equity-linked savings schemes qualify for tax benefits under Section 80 CCC of the Income Tax Act for an investment limit of up to Rs 1.5 lakh in a fiscal year.

In order to make gold and commodity ETFs more attractive, the industry body has proposed to lower the holding period for LTCG purposes from 3 years to 1 year, as is the case for listed debt securities.

Besides, Amfi has requested clarity in respect of creation of segregated portfolio in mutual fund schemes, on capital gains tax treatment upon sale of mutual funds units with regard to the treatment of the units allotted consequent on segregation of portfolio.

In addition, it has proposed that the threshold limit in equity oriented mutual fund schemes be restored to 50 per cent. Reducing the threshold limit of equities from 65 per cent to 50 per cent for being regarded as 'equity-oriented fund' would encourage more investors with lower risk appetite to invest in such funds.

Amfi has also proposed that the definition of equity oriented funds be revised to include investment in Fund of Funds schemes, which invest predominantly in units of equity oriented mutual fund schemes.