Tax Incentives In Budget Will Drive Consumption And Saving Patterns : A. Balasubramanian
*This is a sponsored feature by Aditya Birla Sun Life Mutual Fund.
Indians are increasingly turning to mutual funds to meet their long-term financial goals, and taking note of tax incentives for parking their hard-earned cash in capital markets.
More than Rs 21 lakh crore is invested in mutual funds as of December – an almost seven-fold increase over the last decade that signals Indians' appetite for the risks and rewards of this asset class.
With Budget 2018 around the corner, Bloomberg Quint spoke to A. Bala, CEO of Aditya Birla Sun Life Asset Management Company Ltd. and chair of the Association of Mutual Funds in India (AMFI), about how the budget can be a catalyst for the mutual fund industry and investors in India.
Bala said long-term mutual funds specifically for retirement, similar to the 401k in the United States, would help a greater number of Indians meet their financial goals more quickly and be a boon to the industry.
Listen in to hear Bala’s opinions and the mutual fund industry’s expectations from Budget 2018.
Here are some of Bala’s key points on the mutual fund industry and upcoming budget:
● In the last few years, we’ve seen rising penetration and inflows of mutual funds. Demonetization has led to heightened acceptance of putting savings into financial instruments, including mutual funds. Tax incentives and exposing provident funds to mutual funds and equities has also helped this trend.
● The Section 80C limit, which is currently about 2 lakh rupees, can potentially be increased to encourage more people to save tax have more cash in hand to spend and spur consumption.
● The probability of the holding period of three years for long-term capital gains on debt funds decreasing to one year is on the lower side, since this was just introduced a year ago.
● As part of its budget wishlist, AMFI has asked the government to include mutual funds in its list of accepted instruments and asset classes under Section 54E - exempting from capital gains tax any proceeds from the sale of a long-term capital asset (such as property), provided the money is re-invested in a pre-defined instrument. Mutual funds were allowed as an investment at one point, but have since been removed.
● AMFI believes that allowing long-term retirement plans under the mutual fund umbrella - similar to the 401k plan in the United States - would benefit a large pool of people at a faster pace who are currently not part of any retirement plan. The reach of mutual funds is far superior and controlled, compared to other options.
● The industry body has also proposed debt-linked savings schemes, similar to equity-linked savings schemes, where investors can benefit under Section 80C.
● The budget is likely to be more rural focused and may take steps toward increasing tax compliance. This in turn will allow people to save money, leading to an uptick in consumption and the economy.
*Data from the Association of Mutual Funds in India (AMFI)