Investment in mutual funds may turn expensive as the government today withdrew service tax exemption given to MF agents of asset management companies (AMCs).

However, some relief has come in the form of tax neutrality in case merger of MF schemes with similar features, on which investors had to capital gains tax earlier.

In his Budget proposals, Finance Minister Arun Jaitley proposed withdrawing service tax exemption on services provided by MF agents or distributor of AMCs.

“Service tax in respect of mutual fund agents and mutual fund distributors services shall be paid by AMC or, as the case may be, by the mutual fund receiving such services,” the Budget document said.

In order to facilitate consolidation of MF schemes, the minister has proposed, ”...To provide tax neutrality to unit holders upon consolidation or merger of mutual fund schemes provided that the consolidation is of two or more schemes of an equity oriented fund or two or more schemes of a fund other than equity oriented fund.”

Market regulator SEBI has been encouraging MF houses to consolidate different schemes having similar features so as to have simple and fewer numbers of funds.

At present, there are 45 mutual fund houses, which manage assets worth nearly Rs 12 lakh crore in total.

Mutual fund is an investment vehicle with a pool of funds collected from investors to buy securities such as stocks, bonds, money market instruments and similar assets.