Several fund houses are planning to file their offer documents for retirement plans with market regulator Sebi in the coming weeks on hopes that these plans will be given the same tax benefits as other pension plans.
About 25-30 fund houses are in various stages of filing their retirement plans, said two industry officials. Most of the fund houses are awaiting clarity from CBDT on the taxation front. “We are ready with the product. The moment CBDT clarifies on the tax part, we will file the offer document with Sebi,” said Anutosh Bose, COO, Nomura MF.
The Budget highlights had mentioned that there would be ‘uniform tax treatment for pension fund and mutual fund linked retirement plan’. Under these plans, investors would be able to invest till retirement and get a tax break under Section 80CCD. The Central Board of Direct Taxes, or CBDT, however, is yet to give details on the tax treatment of these funds.
Earlier this month, SBI MF had filed an offer document for an open-ended retirement benefit scheme called SBI Retirement Benefit Fund with Sebi. “CBDT is likely to come up with a notification wherein pension plans of mutual funds will be eligible under section 80CCD. If the notification doesn’t come, then we may seek a special exemption from CBDT,” said DP Singh, executive director & CMO (domestic business), SBI MF.
At present, UTI Retirement Benefit Pension Fund and Franklin Templeton Pension Fund are the only pension schemes operated by the MF industry.
The jury is still out on how popular these retirement plans will be. “This will especially be a good investment option for non-pension oriented employees of non-government organisations. The product is likely to find takers, especially in the period between January and March, when most of the tax investments are made,” said Bose. However, some industry officials believe that its success will depend largely on the distribution reach and the high commissions paid to distributors to push the product.
Experts believe upfront commissions for this product could range between 1-1.5% for opportunistic plans and 10-20 bps for conservative plans. Trail commissions could be 50 bps for opportunistic plans and 5 bps for conservative plans. The opportunistic plan option mandates an investment up to 85% in equities, while conservative plans allows investment up to 20% in equities.