MUMBAI : Securities and Exchange Board of India has chalked out a long-term policy to revive retail investors’ interest in mutual funds with proposals including more tax incentives.
The regulator has also proposed stricter norms, which include higher capital requirements, tougher transparency and disclosure requirements to strengthen the industry.
The long-term policy, through tax incentive and non-tax related proposals, will aim at dealing with the public policy objectives of achieving sustainable growth of the mutual fund industry and mobilisation of household savings for the growth of the economy, the report said.
The tax incentives involved launching long-term oriented products, encouraging retail investors and raising the limit on investment in funds for tax exemption.
A long-term product such as a Mutual Fund Linked Retirement Plan (MFLRP) with additional tax incentive of 50,000 rupees under 80C of the Income Tax Act should be introduced, the report recommended, as schemes offering tax benefits encourage household savings in long-term investment products.
It also suggests enhancing the limit of tax-exempted investment under section 80C of Income Tax Act, to 200,000 rupees per year from 100,000 rupees now. This according to SEBI will encourage people to invest more in mutual funds. The Rajiv Gandhi Equity Savings Scheme may also be brought under this enhanced limit. The report added that similar to companies, the merger/consolidation of equity mutual funds schemes should also not be treated as transfer and therefore, be exempted from capital gain taxation.
All the above tax incentive proposals will be sent to the government for approval.
In reference to non-tax incentive proposals, the regulator said its objective is to ensure that mutual funds achieve a reasonable size and play an important role in achieving the objective of financial inclusion, while at the same time, enhancing the transparency so that investors can make informed decisions.
The capital adequacy or the minimum net worth of asset management companies will be increased to 500 mln rupees to ensure that only serious and committed players remain and enable the consolidation of the industry.
The report added that the concept of seed capital should be introduced by mandating fund houses to invest 1% of total money raised in open-ended schemes.
The investment would be however capped at 5 mln rupees. Further, the report said a proposal allowing Employee Provident Fund
Organisations would be allowed to invest up to 15% of their corpus in equities and mutual funds will be sent to the government for its decision, under which, members earning more than 6,500 rupees per month would also be offered an option to invest a part of their corpus in a fund product of their choice. Another proposal recommending Navratna and Miniratna Central Public Sector Enterprises be permitted to put their surplus funds in any SEBI registered mutual fund, as against only public sector fund houses, earlier, will also be sent for the government’s approval, the report said.
Fund houses will have to disclose the assets garnered from different categories of schemes, those garnered from B-15 (beyond top 15) cities, contribution of the sponsor and its associates in the total assets under management and the assets raised through sponsor group/ non-sponsor group distributors; on their respective website and the Association of Mutual Funds in India’s website on a monthly basis.
They will also have to disclose their voting data along with the rationale supporting their decision on a quarterly basis, which will be certified annually by an auditor and reviewed by board of trustees of the asset management company.
All this will help enhance transparency, improve the quality of disclosures and encourage fund houses to diligently participate in corporate governance of the investee companies and exercise their voting rights in the best interest of the unit holders, said the report.
A gradual approach will be taken to achieve the goal of financial inclusion by targeting the country’s banking population towards mutual fund investing, the report said.
It added that to develop and enhance the distribution network, public sector banks will be encouraged to distribute all mutual fund schemes and efforts will be made to tap the online investment facility for direct distribution of fund products to Internet savvy and mobile-only Internet users. -Cogencis
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