MF industry wish list: Abolish STT, continue ELSS tax break

Having seen outflows in almost every month over the past one and a half years, after loads were banned in August 2009, the mutual fund industry now wants sops to lure investors to park their savings with them.

Currently, the AUMs are close to Rs seven lakh lakh crore, of which Rs over Rs 5 lakh crore is invested in debt securities and the smaller amount of just under Rs 2 lakh crore is in equities.

On the industry’s wish list is the abolition of the incidence of STT either on the fund or the investor. Observes Sandesh Kirkire, CEO of Kotak Mahindra MF, “The government should consider abolishing STT at one end. Today, the investors pays the tax while redeeming the units and the fund pays while buying the securities that are invested in the scheme. It doesn't make much sense to charge double STT.” Currently fund houses pay 0.125% as STT while buying equities while investors cough up 0.25% while redeeming their units.

Kirkire also says the government should continue with tax benefits available for ELSS, which are likely to go away once DTC comes into effect.

Also, fund chiefs are hoping that finance minister should charge capital gains tax if investments are held for three year or less. Such a move, they say, will persuade investors to hold on to their units for at least three years leaving fudns with stable money. Currently, long-term capital gains tax is not applicable if investors hold units for more than one year.

T P Raman, MD at Sundaram Mutual Fund says, “We see a lot of people moving away after being invested for a year as there is no long term capital gains tax. So the government should hike this period to three years or even five years so that investors stay invested for longer duration and the churn in the industry is lower.” Currently, short –term capital gains tax is levied at a rate of 15%, along with the surcharge and education cess.

Market participants also say there should be some tax incentive for retail investors coming into debt schemes. A Balasubramanian, CEO of Birla Sun Life MF says, “Given the poor bond market development, MFs could play a big role in the development of the bond market. I think, the government can provide some tax incentive for a higher level of participation of retail investors in fixed income schemes, which are meant for long term investment. They can provide a lock-in period of three year or five years with some tax incentives. That could attract money which would eventually be channeled into infrastructure companies.

Source: http://www.financialexpress.com/news/mf-industry-wish-list-abolish-stt-continue-elss-tax-break/754000/0