SEBI asks mutual funds body to ready draft plan for pension products

Shishir Sinha
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Move to make pension schemes more attractive

The market regulator Securities and Exchange Board of India (SEBI) has asked the Mutual Fund Advisory Committee and the Association for Mutual Funds in India (AMFI), to prepare draft plan for pension products by mutual funds.

At present, mutual funds can launch pension products — but there is no tax benefit to the investor, unlike similar schemes from insurance companies.

Barring mutual fund schemes such as UTI Retirement Benefit Pension Fund and Templeton India Pension Plan (formerly known as Kothari Pioneer Pension Plan), an individual cannot get tax benefit at the time of investing in a pension fund launched by a mutual fund.

No tax benefit

A person familiar with the development told Business Line, “No tax benefit at the time of investment discourages mutual funds from launching pension products. Once the drafts from the advisory committee and the industry body are received, the regulator will move the Finance Ministry for providing tax benefit.”

Pension products will serve dual purpose. On the one hand, it will provide long-term funds for the fund houses, while on the other hand, investors will have another option for long-term investments. Such a move is also likely to give a fillip to mutual funds that are facing heavy outflow.

Existing pension funds of mutual funds are designed to provide pension. With such an aim, they levy an exit load between 1 per cent and 5 per cent, if money invested is withdrawn before the age of 58 years. These schemes usually invest up to 40 per cent in equity and rest in debt.

Facilitating other mutual funds to launch pension products is being thought of at a time when the Prime Minister and the new Finance Minister have promised to revive the mutual fund industry. The Prime Minister in his meeting with the Secretaries in the Finance Ministry on June 27 said that there are issues about the mutual funds industry which need to be resolved.

Finance Minister P. Chidamabaram, on August 6, expressed concern on the sluggish nature of the mutual fund industry.

He said that in the next few weeks, a number of decisions would be taken to attract more people to invest in mutual funds.

Board to meet next week

Based on these two assurances, the SEBI board is expected to consider various measures, which include increasing the expense ratio, in its meeting on August 16.

(This article was published on August 10, 2012)
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