Investments in pension plans of mutual funds (MFs) could get a fillip if Budget 2017 extends the benefit available for taxpayers under section 80CCD of the Income Tax Act, 1961 up to Rs 50,000 annually, if they invest in the National Pension System (NPS). This, and a faster system of approval by the tax authorities to pension plans of MFs will spur investments, says a fund manager.
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The deduction of Rs 50,000 is in addition to the Rs 1.5 lakh available under section 80C.
"In my view, investments through mutual funds managing pension plans should also be allowed to get deduction under section 80CCD. Presently section 80C giving tax break of up to Rs. 1, 50,000 is crowded with too many options and ELSS (Equity Linked Savings Schemes) is one of them. By offering an altogether dedicated section for it I believe ELSS will receive an automatic boost and many investors will be attracted to it. This would bring the much-needed domestic funds to the capital markets and also inculcate the habit of investing in market oriented growth assets among households," Jimmy Patel, CEO-Quantum AMC, said in a note.
He also said that a pro-active approach by the tax department is also critical to the success of pension plans of MFs.
"...very few pension plans by mutual funds get a nod from Central Board of Direct Taxes (CBDT). I believe, investments in equity market through mutual funds over a long period, as suited for a pension plan, could allow investors to make the most of the rising market. Therefore, the CBDT should get rid of the cumbersome process and could look at an auto-approval methodology that welcomes more MF schemes for investors," Patel said in his note.
How about individuals starting MFs?
The Modi government should take a cue from the Reserve Bank of India (RBI) in giving approvals to individuals to start asset management companies (AMCs) that manage MFs. The RBI has allowed individuals to set up banks in India with riders, to expand financial inclusion.
"In the mutual fund industry too, by allowing eligible individuals to start an AMC, it will encourage both individuals and investors to invest in mutual fund schemes in India. With more and more good and honest players in the industry, investors will have quality mutual fund schemes & services to choose from," Patel said.
In the US, some of the large fund houses today were initially started by individuals. Vanguard and Templeton, both mammoth fund houses, were started by John Bogle and Rupert H. Johnson, Sr. respectively," he added.
"I hope that, this Budget will have financial inclusion through mutual funds as a principal theme by giving much needed attention to the mutual fund investors," Patel said.
As already known, Budget 2017 will be presented by finance minister Arun Jaitley on February 1, 2017.
