The Hindu Business Line : Pre-Budget meeting — MF captains suggest 401K-type option for salaried class

THE mutual fund industry is seeking to expand its product base by introducing schemes where investors can choose to divert part of their salaries for investments in mutual funds. This was one of the suggestions made to the Finance Minister, Mr P. Chidambaram, earlier this week by the mutual fund industry.

The Minister had met a delegation of Chief Executive Officers of asset management companies on last Tuesday in New Delhi.

The product being mooted would be similar to the 401K option in the US. Under this system, salaried workforce contribute a part of their income to the 401K plan; tax breaks are available for contributions up to certain set standards and employers can also choose to match this contribution. These funds are then invested in various mutual funds and add up to the retirement kitty.

The delegation also sought continuation of the tax sops to the industry and is also understood to have suggested that earnings from investments in mutual funds be made tax-free.

Industry insiders expect that the Minister would announce exemption on capital gains from mutual fund investments and the structure would be similar to that of investments in the equity market.

"The Minister was greatly enthused by the idea of introducing 401K-kind of products in India," stated a source who was present at the meting.

Mr Chidambaram started the meeting by clarifying that political statements were different from government policies and wanted to know why the capital markets were reacting sharply to political statements that may not have any impact on policy making.

The mutual fund delegation included Mr. AP Kurien, Chairman, Association of Mutual Funds in India (AMFI), members of the working committee of AMFI and CEOs of AMCs that have more than Rs 5,000 crore in assets under management.

Mr Chidambaram could not meet the mutual fund industry leaders when he visited Mumbai earlier this month and had announced that he would be scheduling a separate meeting with them.

The meeting is part of ongoing consultations prior to the presentation of the Budget on July 8.