MFs want cut in small savings rates

NEW DELHI: The mutual fund industry has demanded a cut in small savings rates, removal of dividend distribution tax and a scheme to guarantee capital gains to boost the Rs 1,40,000 crore market.

The Association of Mutual Fund in India (AMFI) has given a representation to Finance Minister P Chidambaram to restore the exemption from the 12.5 per cent dividend tax on the returns from equity mutual funds.

The exemption was applicable till March 31, 2004. It could not be extended by the caretaker NDA government due to the elections.

Private players also sought a slew of measures to boost the mutual fund industry, which covered only six per cent of the total household savings of the country.

Standard Chartered Mutual Fund managing director Naval Bir Kumar said small savings rates should be reduced in line with the prevailing interest rates, other than that for senior citizens and lower income groups.

"This can be done by capping investment to less than Rs 30,000 per year for all citizens with a higher cap for older citizens," he said.

"In order to ensure consistent growth of MF industry, we expect government to maintain tax benefits and reducing or removing the dividend distribution tax and broadening the scope of Section 54EC to allow capital gains to be invested in MFs," Kumar added.

Bajaj Capital managing director Rajiv Bajaj said, "The government should take initiatives for introducing a Capital Guaranteed Products for mutual funds."

Bajaj said government should remove the cap of Rs 10,000 under Section 88 on Equity-linked Savings Schemes (ELSS), which could bring in five crore odd small investors in the equity market.
He said the tax rebates under Section 88 should be made applicable for those earning more than Rs 5 lakh, as earlier.

Cholamandalam AMC chief investment officer, T Pathak, said the exemption from dividend distribution tax should be restored and the budget should give an indicative target for disinvestment receipts.

Mutual funds also pitched for raising the income tax deduction limit of Rs 10,000 under Section 80CCC for contribution towards pension schemes.

"The limit should be increased to at least Rs 50,000 to encourage people to accumulate a decent sum by the time they retire," Bajaj said.

The government should allow MFs to participate in the new pension system by quickly deregulating the sector, Kumar said.

"Mutual funds should also be exempted from Service Tax. MFs are pass-through vehicles and so any addition in costs reduces the attractiveness of the schemes," he said.