The Hindu Business Line : A level playing field for MFs

SHOULD you plonk your money on a unit-linked insurance plan, increase your housing loan repayment or invest in an equity mutual fund? If you were toying with this decision for some time, the Budget just made it easier for you to decide, as it takes the tax factor out of your calculations.

The Budget has removed the Section 88 rebate and introduced a comprehensive Rs 1-lakh limit under a new Section 80C for savings that can be straightaway deducted from your income. This has the following implications for mutual fund investors:

Investments in mutual funds formulated under a specially notified scheme of the Central Government will be eligible as savings under the Rs 1- lakh limit under the new Section 80C. Any investment of up to Rs 1 lakh in such funds can be straightaway deducted from your income for computing tax.

The features of funds that will be eligible for the deduction are as yet unclear. But fund houses may float new schemes that will be eligible for the deduction.

Alternatively, existing tax saving funds may be rejigged to accommodate such investments.

Investments, to be eligible for the deduction, will carry a 3-year lock-in period.

At present, you can only invest a maximum of Rs 10,000 in a tax saving fund, to qualify for the tax rebate under Section 88. You can now invest up to Rs.1 lakh under the new Section 80C.

Mutual fund houses will also be allowed to float special pension funds to manage pension money, which will also qualify as savings.

ULIP, the unit-linked insurance plan from the UTI will qualify as one of the investment options under the new Section 80C. There is no change in the present rates of short-term capital gains tax for appreciation earned on mutual fund units. The marginal increase in securities transaction tax will slightly increase your transaction costs when you buy mutual fund units.

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