India's mutual fund industry, which had an action-packed period last year, expects the government to continue with its reform measures for the sector. They hope that in the upcoming Union Budget, the government should address various issues the sector is facing currently.
Among its top expectations from the budget, fund houses want government to address the issue of double incidence of charging Security Transaction Tax (STT), allowing state-owned companies to invest in private sector mutual funds and MF pension schemes be allowed under National Pension Scheme (NPS).
According to Nimesh Shah, CEO & managing director of country's third largest fund house ICICI Prudential Mutual Fund, the current STT levy requires a unit holder to pay STT on every buy or sell transactions. "This leads to double incidence of STT on investor and should be withdrawn," he adds.
Jimmy Patel, CEO of Quantum MF, agrees. STT is charged on all the transactions in the stock market when a fund buys or sells securities and also when an investor buys or sells units from the fund house, he explains.
Another fact which irks private fund houses is that they cannot tap the surpluses available with the state-owned companies. According to Waqar Naqvi, CEO of Taurus Mutual Fund, industry would like to see PSUs being allowed to invest in private MFs.
Moreover, decision of the government two years back to allow foreign investors to invest in Indian mutual fund houses is still not catching up. Because of the procedural and most importantly practical difficulties, domestic fund houses have not seen inflows of foreign money. According to sector executives some push towards helping MFs mobilise money from overseas is also required.
Among other demands, fund houses have voiced their concern over the tax breaks to investors for mergers of schemes. Currently, when a scheme gets merged into another, the first scheme ceases to exist. Even though investors choose to go along with the merger and stay invested, it is still considered as a withdrawal from one scheme to another and investors have been charged capital gain tax.
In the perspective of the case between Income tax department and more than a dozen fund houses last year, industry executives have also demanded that investment in pass through certificate (PTC) by mutual funds should not be subjected to income tax.
What Mutual Funds expect from the Union Budget?
- Anomalies in taxation should be removed specially for investments in fund of funds (FoF) schemes and bonds and fixed income instruments
- Uniformity of tax treatment across states for VAT on gold
- Income tax benefits for investments in MFs
- MF Pension schemes be allowed under NPS
- STT on redemption should be withdrawn.
- PSUs be allowed to invest their surpluses in all mutual funds
- Investment in Pass through Certificate ( PTCs) by mutual funds should not be subject to income tax
- Infrastructure Development Funds should get similar tax advantage of 5% withholding tax in case of similar funds from NBFCs