Sebi seeks tax sops for equity mutual funds

NEW DELHI: A day after Prime Minister Manmohan Singh talked about reviving mutual funds, Sebi on Thursday said it will pitch for additional tax sops for investment of up to Rs 50,000 in equity schemes by individuals, instead of reintroducing entry load that will hit consumers hard.
Officials told TOI that the tax benefit could be added to the Rajiv Gandhi Equity Scheme announced in the Budget, which is targeted at those who buy shares and stay locked in for three years.For new retail investors with taxable income of up to Rs 10 lakh, the government has allowed up to 50% tax deduction on investment of up to Rs 50,000.
Although the regulator had made the plea to Pranab Mukherjee earlier, no decision was taken on the issue. There is a perception that retail investors are not well equipped to deal with direct investment in shares and would be better off using the mutual fund route — an argument that has not found favour with the finance ministry. Sebi is arguing that expanding the scope of the Rajiv Gandhi Equity Scheme to mutual funds will not just boost retail participation but also help it emerge as a segment that can counter the might of the foreign institutional investors.
While identifying revival of investor sentiment as a key focus area, the PM on Wednesday had also asked the finance ministry to work on two areas of investment — mutual funds and insurance. Sources said that apart from boosting mutual funds, the market regulator and the economic affairs department in the finance ministry are pitching for doing away with the requirement for foreign retail investors to get a PAN card from local authorities. "Will an Indian invest in Brazil if he or she is first asked to register with the tax authorities there?" asked an official, citing this as an area of concern that foreign players have pointed to during their interaction on qualified foreign investors.
In January, the authorities permitted foreign retail investors to invest directly in Indian stocks but has seen no inflows yet as the rules are being revised to make them attractive. The tax department has, however, held its ground on the issue of PAN. The sources also said that Sebi is making a case of imposition of a levy on commodities trading, on the lines of the securities transaction tax, as it is of the view that this will result in a shift of some money parked in another market to move to equities.