The Association of Mutual Funds in India (AMFI), in its pre-budget memorandum submitted to the government, has suggested introducing debt-linked savings schemes, lowering the holding period in gold and commodity exchange traded funds (ETFs), bringing in higher tax parity and allowing certain exemptions to mutual funds for channelising more savings into the capital market.
The mutual fund umbrella body has proposed that investments up to 1.5 lakh under Debt Linked Savings Scheme or DLSS should be made eligible for tax benefit subject to a lock-in of five years similar to a tax saving bank fixed deposit.
DLSS will help small investors participate in bond markets at low costs and at a lower risk as compared to equity markets. This will also bring debt-oriented mutual funds on a par with tax saving bank fixed deposits, where deduction is available under Section 80C, AMFI said in a release.
Further, for gold and commodity ETFs, the industry body has suggested lowering the holding period for exemption from long-term capital gains tax from the current three years to one year, which will bring such instruments on a par with listed debt securities.
It has also sought lowering of dividend distribution tax on debt schemes to at least bring it on a par with corporate tax rate of 22%. Currently, such tax is levied at 25% for individuals and 30% for corporates apart from surcharge and cess.
Lesser DDT will attract fresh flows into debt mutual fund schemes, especially from retirees, and can help inflow stable money into bond market through mutual fund route, the AMFI release stated.
Among other things, AMFI has also proposed that mutual fund units should be notified as Specified Long-Term Assets that qualify for exemption of long-term capital gains. This, as per AMFI, could channelise some of the gains from sale of immovable property into capital markets.
We are hoping this time our long-pending submissions get addressed, which would help take the Indian MF industry not only to the next level of growth but also help in contributing to making economy stronger, especially with deepening of bond market, making long term availability of funds for infrastructure growth, and reducing the fiscal deficit by shifting investments from pure gold to gold ETFs, N.S. Venkatesh, chief executive, AMFI, said.
Some of the proposals are also aimed at bringing parity with comparable investment avenues, making mutual funds more retail investor-friendly, he added.