In this regard, mutual fund industry lobby Association of Mutual Funds in India (Amfi) has sent a proposal to the finance ministry saying that insurance companies be allowed to outsource fund management to mutual funds registered with the Securities and Exchange Board of India (Sebi).
It needs to be seen how the proposal will go down with insurance regulator Insurance Regulatory and Development Authority (Irda).
Amfi wants the government to make appropriate amendments to the relevant regulations and include the proposal in the coming Budget.
In its note to the finance ministry, Amfi has said the global practice adopted by the insurance industry is of open architecture of fund management. "In this regime, insurance companies create appropriate products and utilise the services of professional asset managers in discharging its investment management function," it said.
The Amfi note says there is an urgent need for the Indian regulatory regime to recognise that investors could choose an insurance product of an insurance company with the full knowledge that the investment management function is managed by an asset management company (AMC), which has been chosen by the insurance provider.
According to the industry body, this would result in both mutual fund and insurance industry complementing each other in accessing households with financial products, which could be simple investment products manufactured by the AMCs or insurers.
The move will help avoid any potential conflicts between a mutual fund and an insurance product.
Mutual funds have also asked for the introduction of a mutual fund-linked retirement plan (MFLRP), which is eligible for tax benefits. In its proposal, Amfi said MFLRP be allowed an additional and exclusive tax benefit of Rs 50,000, which will be over and above the existing limit of Rs 1 lakh.
Otherwise, the limit of Section 80C be increased to Rs 2 lakh, the industry body noted. "The existing limit of Rs 1 lakh is being taken up by the mandatory EPF (Employees' Provident Fund), mandatory NPS (National Pension Scheme), Life Insurance Premium and PPF (Public Provident Fund), among others. This hardly leaves any room for the investors to invest in ELSS (equity-linked savings scheme) for tax benefits," the note said.
The asset management industry has also asked for removal of double-taxation of securities transaction tax (STT) on equity-oriented funds and exchange traded funds (ETFs).
Currently, mutual funds are required to pay STT on sale of securities , while the unit-holders are also required to pay the STT on the redemption value at the time of redemption of units.
Last month, the assets under management of mutual fund industry crossed the Rs 10-lakh crore mark and registered the highest gross inflows in equity funds for several years. The sector currently has 39 million folios of investors. Out of it equities alone contribute 29 million of accounts.
MFs' DEMANDS FROM BUDGET (2014-15)
- Increase limit of Section 80C to Rs 2 lakh
- Re-incentivise ELSS
- Removal of double taxation of STT on equity funds
- Exempt levy of capital gains tax on consolidation of MF schemes
- Investment by PSUs in all MFs
- Service tax on entry and exit loads charged by MFs