MFs push for changes in retirement plans in Budget

By: | Published: February 24, 2015 12:09 AM

The 12-lakh-crore Indian mutual fund industry is expecting finance minster Arun Jaitley to come out with...

The 12-lakh-crore Indian mutual fund industry is expecting finance minster Arun Jaitley to come out with some proposals for retirement plans in the forthcoming Union Budget 2015-16 scheduled on February 28. Fund houses say the announcement on some steps for long term saving through mutual funds can play an important role in mobilising household savings into capital markets.

However, fund houses expect the FM to consider bringing the mutual fund linked retirement plans (MFLRP) under Section 80CCD of Income Tax Act rather than under Section 80C of Income Tax Act. Dinesh Kumar Khara, MD and CEO at SBI Mutual Fund says, “Two important issues will be tackled if they bring MFLRP under Section 80CCD — one is that employer will push for such products and secondly it will bring long term money into mutual funds which can do wonders to the industry.”

Currently employees working in the government or private sector or self employed persons investing in National Pension Scheme (NPS) are eligible to claim tax deductions under section 80CCD. Under the section 80CCD (2) contributions made by the employer up to 10% of the basic salary and dearness allowance towards NPS qualify as a deduction in the employee’s hands. The employer is also eligible for a corporate tax deduction on this contribution.

The other reason why fund houses want 80CCD is because section 80C is too crowded with stiff competition among other financial products.

“There is a huge list of financial saving instruments under 80C, like life insurance, public provident fund (PPF), equity linked saving schemes (ELSS) and many such products. For retirement, I think they should come out with another section otherwise, MFLRP will lose its relevance,” said Jimmy Patel, CEO of Quantum Mutual Fund.

There are also reports that, market regulator Securities and Exchange Board of India (Sebi) has proposed that MFLRP introduce retirement saving plan under section 80CCD of the Income Tax Act. Currently there are three retirement funds managed by the mutual fund industry, one which was recently launched by Reliance Mutual Fund.

“I think rather than asking for retirement plans under section 80CCD, we need a separate section only for dedicated retirement plans. This move will help and encourage investors to look for long term investments through retirement plans only if they are not included in section 80C,” said a CEO of mid-size fund house. The industry has also sought a dedicated tax slab of R50,000 for ELSS within the overall limit of Section 80C of Income Tax Act.

Will the fm oblige?

* MFs expect the FM to consider bringing the mutual fund linked retirement plans (MFLRP) under Section 80CCD of Income Tax Act rather than under Section 80C of Income Tax Act
* Fund houses say the move can mobilise household savings into capital markets
* Currently there are three retirement funds managed by the industry, one which was recently launched by Reliance MF

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