Tax relief on merger of MF schemes to benefit investors

But sector doesn't see too many mergers happening in this regard

With the Union Budget 2016-17 extending capital gains tax exemptions to merger of different plans within a mutual fund scheme, sector officials say it will benefit the investors as they will not be liable to pay taxes on the same.

This essentially means that if a scheme X has two plans- A and B; and the fund house managing that scheme wants to merge the two, investors will not be additionally taxed as has been the case earlier. Several of the mutual fund schemes have plans like dividend, growth and bonus. The intra-merger of plans of schemes will generally happen when fund houses find the size of the scheme sub-optimal to run.

The Finance Minister Arun Jaitley proposed in the Budget 2016-17: "Any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating plan of an MF scheme, made in consideration of the allotment to him of a capital asset, being a unit or units, in the consolidated plan of that scheme of the MF shall not be considered transfer for capital gains tax purposes and thereby shall not be chargeable to tax."

These amendments would be effective from April 1, 2016 and will accordingly apply in relation to assessment year 2017-18 and subsequent assessment years.

Sundeep Sikka, chief executive officer of Reliance Mutual Fund, says, "This step is part of the simplifying the merger of schemes so that investors are not at loss."

However, industry officials added that such mergers will not be a larger scale and may be just a one off kind of instances. According to Kaustubh Belapurkar, director (research) at Morningstar India, " I do not see too many mergers happening in this regard."