Amfi seeks debt funds with tax sops for retail investors

MUMBAI: You could soon have another option to save taxes by investing in debt schemes of mutual fund houses, if a proposal by Amfi, the industry’s trade body, is accepted by the government. Planned on the lines of Equity Linked Savings Scheme (ELSS), one of the most popular tax-saving instruments for Indian investors, Amfi has proposed to allow the introduction of ‘Debt Linked Savings Scheme’, or DLSS, by the government in its Budget proposal.
In addition to offering retail investors another tax-saving option, the proposed DLSS could also “help channelise long-term savings of retail investors into the corporate bond market and help in deepening the Indian bond market,” the Amfi said in its Budget proposal to the finance minister.
“While the RBI and Sebi have taken the welcome steps in developing a vibrant corporate bond market in recent times, it is imperative that other stakeholders complement these efforts, considering the fact that with banks undertaking the much needed balance sheet repairs and a section of the corporate sector coming to terms with deleveraging, the onus of providing credit falls on the other players,” Amfi said.According to latest Amfi data, ELSS — with total assets under management (AUM) nearing Rs 1 lakh crore — was the third grossing scheme type among equity funds, behind large-cap (Rs 1.55 lakh crore) and multi-cap (Rs 1.53 lakh crore).
ELSS as a fund group contributes about 15% to the total equity fund AUM. Since these funds come with a three-year lock-in for enjoying tax exemptions, the fund managers also get a longer investment horizon than other open-ended funds.
In its 17-point agenda, Amfi also proposed abolition of dividend distribution tax (DDT) for equity mutual funds. It also proposed similar tax treatment for NPS, EPFO, insurance companies and some other select group of companies “who invest on behalf of their investors/contributors/ policyholders in mutual fund schemes or infrastructure debt funds of mutual funds”. Amfi also proposed that mutual funds should be recognised as ‘Specified Long-Term Assets’, and be exempted from long-term capital gains tax.