Union Budget 2018: 5 Expectations From Mutual Funds

By Adhil Shetty | January 24, 2018

The Mutual Funds sector expects the government to introduce sops relating to Mutual Fund pension products in this budget. Read on to know more.

Union Budget 2018: 5 Expectations From Mutual Funds

As the countdown to the much-awaited Budget begins, investors and corporates are hoping for any relief or change in taxation. Many believe, this being the last full-fledged budget of the central government, it may eventually turn out to be a populist budget.

Union Budget 2018 will also be a first after the implementation of Goods and Services Tax (GST). Also, with the stock markets witnessing a phenomenal rise in the last many months, equity investment has gained momentum. The demonetization exercise leading to a fall in Fixed Deposit interest rates also diverted many towards the Mutual Funds route. Meanwhile, growing in confidence and volume, the sector in India expects sops by the government for mutual fund retirement plans.

Five key expectations from the Mutual Funds sector are:

Increase the exemption limit under Section 80C

Equity Linked Saving Schemes are a popular choice for many investors as they help in creating wealth as well as provide a profitable return. This mutual fund scheme comes with a lock-in period of three years, and tax benefits are offered under Section 80C of the income act, which offers exemptions of up to Rs. 1.5 lakhs.

There is a growing demand from the industry to increase this exemption limit to Rs. 2 lakh so that investors can avail better tax benefits. This will not only put more money in the hands of taxpayers but would also encourage them to invest in financial assets.

Debts Funds/Hybrid Funds To Be Part of Section 80C

Debt Mutual Funds invest in debt/fixed income securities. Hybrid Funds invests in a mix of equity stocks and debt securities. Debt funds and Hybrid funds are primarily for conservative investors. Currently, ELSS (Equity Linked Savings Scheme) is the only mutual fund scheme that qualifies for tax deductions up to Rs. 1.5 lakh under Section 80C of the Income Tax Act.

However, an ELSS invests mostly in stocks, making it unsuitable for conservative investors. This budget should make debt/hybrid funds also a part of 80C of the income tax and exemptions.

Allow Mutual Fund Houses To Launch Pension Products

Few mutual fund houses in the country are allowed to launch pension products, but these products are not very popular amongst investors. Since retirement planning is amongst the top priority for many, mutual fund houses should be allowed to come up with products exclusively meant for retirement.

This will be a long-term retirement plan for the retail investors. These products will have a combination of both equity and debt. The debt allocation in the portfolio will increase closer to retirement.

Aadhaar number to be replaced as a single folio number for any Mutual Fund investment (Folio portability)

When an investor makes a Mutual Fund investment, they are allotted a folio number by the fund house. It is a unique number to identify your holdings with the respective mutual fund house. This unique number differs from fund house to fund house.

To make it hassle-free for investors, the secured Aadhaar number can be replaced as a single folio number for any mutual fund investment.

To remove the limit of Rs. 50k per AMC per financial year, while investing through Aadhaar OTP

The regular KYC process requires submission of KYC form with investor signature and additional documents for ID and address proof. In-person verification (IPV) needs to be done by a competent person. The eKYC process eliminates paperwork and IPV to complete the KYC process. This is done using the Aadhaar number with the OTP triggered to the registered mobile number.

Investors investing through eKYC are permitted to invest Rs 50K per mutual fund per financial year. Aadhaar is supposed to be a universal KYC for all residents of India. The removal of the Rs 50K limit can be of great help from the point of extending the reach of mutual funds.

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About Adhil Shetty

Adhil Shetty is the Founder and serves as the Chief Executive Officer of BankBazaar.com. Adhil has a Master’s degree in International Relations with a specialization in International Finance and Business from Columbia University in the City of New York, and a Bachelor’s degree in Engineering from the College of Engineering Guindy, Anna University. Adhil is an expert in Personal Finance (Car loan/Home loan and personal loan) and he majorly consults on investment and spends rationalization for the Indian loan borrowers. His guidance is number based with real time interest rate calculations and hence useful for consumer’s real time query.

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