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  • Budget 2017: Let existing MF schemes to launch a separate 'Tax-Saving' plan

    Article by Neil Parikh in Moneycontrol, January 25, 2017

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    While 'Budget-watching' is entertaining, one particular Budget is usually not a life-changing event. Hence, pay more attention to your individual budget all year-round

    It's that time of the year again, albeit, preponed by a month this time round. If 2014 was a time when people wondered whether Narendra Modi would deliver the goods, some are touting 2017's Union Budget as the litmus test for Arun Jaitley.

    While, usually, one Union Budget does not a bring revolution (except perhaps, Dr. Manmohan Singh's in 1992 and P. Chidambaram's in 2004) this year's budget speech is more significant than many recent ones as it will be avidly scoured for evidence on whether the government is walking it's talk on providing relief for the common citizen, who is apparently reeling from the collateral damage of demonetisation.

    Probably influenced by Norman Vincent Peale's quote, "Shoot for the moon. Even if you miss, you'll land among the stars", several industry bodies, Non-Governmental Organisations (NGOs) and media mavens are demanding a slew of tax-breaks, subsidies and give-aways, despite being fully aware that all of these requests will not be acceded to.

    However, from my perch, as CEO of a mutual fund, I can sense that all indications point to a budget which will take steps towards making India a more egalitarian society.

    Hence, while my heart denies it, my head believes that some form of taxation will be imposed upon long-term capital-gains earned on the sale of equities and equity mutual funds. Alternatively, while they could continue to be tax-exempt, the definition of 'long-term' may be extended to well beyond the current period of one year, to perhaps three or five years. We would welcome such an extension, if it transpires.

    Apart from this, I tend to agree with certain recommendations made by the Association of Mutual Funds of India (AMFI) with regard to equal treatment of retirement products of mutual funds and the New Pension Scheme (NPS). This could either be in the form of a separate exemption carved out for Equity Linked Savings Schemes (ELSS) with Section 80C or the creation for a new sub-section akin to 80CCD for NPS.

    Considering SEBI frowns upon the launch of too many schemes, I suggest that existing mutual fund schemes be permitted to launch a separate 'Tax-Saving' Plan within the same scheme, rather than be compelled to launch a new one merely to avail of the benefits u/s 80C. Investors choosing this plan will enjoy the same benefits and be subject to the same restrictions as any other ELSS. However, the investment portfolio and fund management style will be the same as that of the existing scheme. This will avoid needless duplication.

    Also, AMFI's recommendation that infrastructure-oriented mutual funds be considered 'eligible vehicles' u/s 54EC is worthy of consideration. However, given our experience of fuzzy / hyper-inclusive definitions of the term 'infrastructure', over the past decade, perhaps extending the benefits of this section to all equity mutual fund schemes (subject to the same lock-in period as those imposed on other eligible investments) may better serve the purpose.

    Finally, while 'Budget-watching' is entertaining, one particular Budget is usually not a life-changing event. Hence, pay more attention to your individual budget all year-round, rather than the one due to be announced on February 1.

    The original article could be seen here.

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