With the budget around the corner, there are great expectations from the Finance Minister by all and sundry and the mutual fund (MFs) industry is no different. The salaried class has high expectations that Budget 2016-17 will bring in relief for them.
The common man has an incredible urge to save and invest in assets yielding real returns. The consumer price index (CPI) has witnessed downward trajectory for past couple of years. Real Estate and Gold as an asset class are not doing well. Equities as an asset class has emerged as a preferred asset class for retail investors. It is much in line with the macro requirements of a highly leveraged Corporate Balance Sheets of Indian Inc. However, there has been no sustainable policy in the past to promote and sustain the equity cult. Keeping in view the financial literacy levels of common savers in the country, mutual funds is the most suitable vehicle for the Indian savers to reap the benefits of investing in to equities through the expert advice of the experienced fund managers. MFs being an alternative and safe route for retail investors to participate in the capital markets needs to be promoted to bring in equity cult in the country.
With the government taking steps towards financial inclusion with its Jan DhanYojna, we feel that there is a strong case for making MFs a part of this programme to help increase the reach of the common man to the capital markets.
Mutual funds offers tax efficiency for the ultimate investor. However, we have observed that Funds of Fund having sizeable portion of equities as underlying assets are not preferred by investors as they do not enjoy the same tax treatment as pure equity funds. For instance even if a fund of funds has 65% of its assets invested in equities, it is still treated as a debt fund. This disparity needs to be removed to encourage more retail participation in MFs.
Secondly, Rs 1.5 lakh exemption under section 80 C includes equity linked savings schemes (ELSS), which is quite a popular product and is an effective tax saving instrument. Investment options eligible for exemption under Sec 80 C being many, restricts the scope for investment in to ELSS. To promote ELSS , we believe that a separate tax exemption may be considered for ELSS products.
In keeping with the proposals that AMFI has made we are also hoping for the equal treatment of MF investment having Retirement Benefit plan at par with NPS. This will enable Mutual Funds to attract long term Retirement Money into equity asset. Exemption under Section 80 CCD for the Retirement plans of Mutual Funds is requested to make such Mutual Fund Retirement Plans as preferred option to channelize long term retirement money into equities.
These measures will not only help more investors to save while participating in the country’s growth story but it would also encourage the habit of disciplined investing among investors.
To create alternative funding vehicle for Infrastructure sector , it is proposed that tax breaks may be offered for investment into Infrastructure Debt funds promoted by mutual funds. This will be a win-win both for the investor as well as the infrastructure sector that is on the cusp of stupendous growth, given the Government push in the sector.
Lastly, but not the least, we are in sync with the expectations of the common man who are expecting that government will add some more saving products and hike the limit of exemption to Rs 2 lakh from Rs 1.5 lakhs, currently available under Section 80 C and revise the overall limit to Rs 2 lakhs.
The author is managing director, SBI Mutual Fund