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The creation of a new lower tax regime with removal of all exemptions will hit the mutual fund industry hard as a major chunk of monthly systematic investment plan (SIP) inflows are going into tax-saving schemes.
As of December 31, the assets under management (AUM) under tax-saving equity-linked schemes stood at about ₹1.04-lakh crore, accounting for 3.5 per cent of the total AUM of ₹26.54-lakh crore.
The industry receives about ₹8,000 crore through SIPs every month.
G Pradeepkumar, CEO, Union Mutual Fund, said considering the size of the mutual fund industry, the impact of withdrawal of tax exemption on ELSS to a section of investors would be very limited.
Shibani Kurian, Fund Manager and Head — Equity Research, Kotak Mahindra Asset Management Company, said the lower tax is applicable for income up to ₹15 lakh after foregoing all tax exemptions. It is likely that only a few tax payers will migrate to the new regime immediately as the exemptions to be foregone are far too many, including 80C, LTA, 80D, 80G, Standard Deduction, HRA, and interest on home loans. Further, she said ELSS is a savings instrument which enables investors to participate in equity as an asset class and it will not lose its charm.
The Budget has also clarified that the cost of units allotted under the segregated portfolio as that of the original at the time of initial investment.
Disposable income to rise
Ashutosh Vishnoi, Managing Director & CEO, Mahindra Mutual Fund, said the disposable income of the common man will increase with the proposed rationalisation of income tax slabs and decrease in income tax rates.
Those in the lower income tax slabs are likely to benefit the most from this option that has been made available.
The removal of dividend distribution tax at the corporate level will also be applicable to mutual funds and benefit investors.
The increase in foreign portfolio investor (FPI) participation in the corporate bond market will enhance liquidity and facilitate corporates access to long-term credit.
The proposal to allow issuance of PAN card on the basis of Aadhaar will facilitate a newer set of mutual fund investors as the Aadhaar card issuance number is much higher than PAN.
The plan to launch another G-Sec-based exchange-traded fund (ETF) will encourage retail participation in Government securities and also help the Centre to diversify its borrowings.
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