PAY MORE FOR MUTUAL FUNDS

Consumer to bear service tax burden

NEW DELHI: If you are looking to invest in a mutual fund product, you may well have to pay more.

The finance ministry, which held a meeting with representatives of the mutual fund (MF) industry on Monday, could propose that the burden of 12% service tax on purchase of MF products be passed on to consumers.

Prime Minister Manmohan Singh, who assumed charge of the finance ministry last week, said all issues need to be resolved at the earliest in a bid to boost growth in the segment.

The mutual fund industry has also sought an increase in the expense ratio — mainly administrative expenditure — to 2.25% from the present 2.20%; 2% is expense and 0.20% exit load.

“Service tax should be borne by consumers and it should be kept out of the total expense ratio,” HN Sinor, CEO, Association of Mutual Funds of India (AMFI) told reporters after the meeting.

Delhi-based financial planner Surya Bhatia said one way to ensure consumers are not burdened further is to include this in the negative list of services, effectively exempting a tax payout by subscribers.

“If service tax is charged then the consumers would naturally have to bear the burden like all other cases. The only way is to put this in the negative list and provide relief to investors,” Bhatia said.

The finance ministry could also propose reinstating of entry loads — a fee charged from the investors on purchase of MF products. The move would mean that investors would have to bear the distribution cost. Though no decision has yet been taken on this, analysts said such a move would be anti-consumer.

“The issue (of reinstating entry load) was brought up in the meeting by distributors; the MF industry did not raise the issue,” an official source who did not wish to be identified said.

Market regulator Securities and Exchange Board of India (SEBI) has given a nod to mutu- al fund distributors to charge R100 as transaction charge per subscription from existing investors and R150 from new investor since August last year.

Sinor said the MF industry is not in favour of revising entry load. “We have not raised the issue. It is a three-year-old matter and the industry did not believe in reviving it,” he told HindustanTimes.

The industry wants to float pension schemes that bear tax relief incentives. It also raised the issue of benefits to players servicing smaller towns.