The Hindu Business Line : MFs eyeing a piece of the pension pie

`A PIECE of the pension pie' - tops the Budget wish list of the mutual fund industry. Asset management companies are hopeful that mutual fund participation in pension funds and personal equity plans (similar to the 401K scheme in the US) will broad base the industry and help multiply its assets under management.

``The industry would certainly receive a fillip if the Government allows mutual funds to manage pension funds. In the US, 401(K) plans combined with variable annuities have helped the industry to overtake banks in terms of assets under management and we see the same happening in India as and when the Government makes the policy decision,'' said Mr Ravi Mehrotra, President - India, Franklin Templeton.

The fund management industry is also hopeful of a status quo on exemption from dividend tax. The industry would be buoyed by a reduction in or removal of the dividend distribution tax as well, according to Mr Naval Bir Kumar, Managing Director, Standard Chartered AMC Pvt Ltd.

The other sore spot the industry wants removed or toned down is the capital gains tax. ``Sec 54 EC should be broadened to include capital gains from investments in mutual funds.

This also means increase in inflow into Government's infrastructure bonds," said Mr Krishnamurthy Vijayan, Chief Executive Officer, JM Mutual Fund.

The alternative to this is to replace long and short-term taxes on capital market transactions by a transaction tax. This would be a key positive initiative to bolster investor confidence decisively and increase retail participation in the capital markets, pointed out Mr Ashim Syal, Chief Investment Officer, ING Vysysa Mutual Fund.

While AMCs are not willing to take a stance on the service tax on distribution of mutual funds as the standoff between themselves and distributors on this issue is yet to be resolved, the indications are that any hike in service tax would affect the inflows into the industry adversely.

``While we are not taking the onus of the service tax on distributors, it is fairly clear that distributors may move to non-mutual fund products as the incidence on service tax is on them. If this is passed on to the investor, it makes it that much harder to convince them to invest their money in mutual funds as against parking it in savings bank accounts,'' said the CEO of an AMC.

AMCs are also looking forward to guidelines for investment in overseas schemes that will help investors diversify their investments across countries.

Even though the mini-budget announced by the NDA Government in February this year allowed for investments up to $25000 a year abroad, fund houses are unclear about the investment procedures for these. A clarification is expected.

Some of the items on the wish list of fund houses were presented to the Finance Minister in June. Speculation about what will be granted and what will be rejected is high.

The suspense however, continues till Thursday.

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