Funds, In­sur­ers Want More Tax In­cen­tives to Bring Back In­vestors

Say govt must dif­fer­en­ti­ate be­tween long-term sav­ings & short-term in­vest­ments

The Economic Times - - Personal Finance - BABAR ZAIDI

Tax­pay­ers don’t re­ally have to ask the govern­ment for any ben­e­fits. The mu­tual fund in­dus­try and in­sur­ance com­pa­nies are al­ready press­ing for in­cen­tives on their be­half. “The govern­ment must pro­vide the right tax sav­ings sup­port to long-term sav­ings and clearly dif­fer­en­ti­ate them from short­term in­vest­ments. An additional tax in­cen­tive of ` 1.5 lakh to life in­sur­ance and ` 1 lakh for re­tire­ment plans could re­sult in a sig­nif­i­cant growth for the life in­sur­ance in­dus­try,” says Ra­jesh Sud, CEO and MD, Max Life In­sur­ance. An additional tax de­duc­tion for re­tire­ment plan­ning will be wel­comed by the in­dus­try as well as in­vestors. This was first pro­posed in the orig­i­nal Di­rect Taxes Code in 2009, but was re­moved from the re­vised ver­sion of the pro­posed leg­is­la­tion. Such a mea­sure will be a shot in the arm for re­tire­ment plan­ning. The much-touted New Pen­sion Scheme has not made much head­way, man­ag­ing to at­tract only 2.4-lakh vol­un­tary in­vestors com­pared to the 20 crore it was tar­get­ing.

Fund houses are also look­ing at tax ben­e­fits that can bring in­vestors back. The in­dus­try has wit­nessed a sus­tained drop in in­vestor in­ter­est in the past 2-3 years. Mu­tual funds lost al­most 16 lakh re­tail portfolios be­tween Septem­ber and March 2014, ac­cord­ing to a Crisil study. Iron­i­cally, this was the pe­riod when the eq­uity mar­kets shot up, with the Nifty gain­ing 17% on pos­i­tive do­mes­tic and global cues. Though the trend of fo­lio clo­sure re­versed in April, with al­most four lakh new fo­lios, the in­dus­try is yet to re­cover the ground it has lost over the past five years.

“In­dian tax­pay­ers gen­er­ally avoid in­vest­ments that do not of­fer tax ben­e­fits,” says Vi­jai Mantri, CEO and MD of Pramer­ica Mu­tual Fund. “It will help if some tax ben­e­fits are of­fered on mu­tual fund in­vest­ments. How­ever, in­stead of club­bing them in the over­crowded Sec­tion 80C, mu­tual funds should have an exclusive pro­vi­sion,” he adds. One im­por­tant mea­sure that fund houses are look­ing for­ward to is the rein­tro­duc­tion of the Sec­tion 54 ben­e­fits. Till about 15 years ago, in­vestors could put their cap­i­tal gains in mu­tual funds and claim ex­emp­tion from cap­i­tal gains tax un­der Sec­tion 54 EA and EB. In 2000, the Atal Bi­hari Va­j­payee govern­ment did away with the ben­e­fit. “It was a sim­ple and ef­fec­tive method of chan­nelis­ing cap­i­tal gains in the sys­tem as well as pro­vid­ing the mu­tual fund in­dus­try a bal­last of long-term monies. The rein­tro­duc­tion of Sec­tion 54 would be ben­e­fi­cial for all stake­hold­ers in the mu­tual in­dus­try,” says Vikaas M Sachdeva, CEO of Edel­weiss AMC.

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