The mutual funds industry has not seen any reduction in inflows after the proposal to impose long-term capital gains tax (LTCG) and dividend distribution tax (DDT). The Finance Minister, in his Budget speech, had proposed a tax on long-term capital gains exceeding Rs 1 lakh at a rate of 10 per cent without allowing the benefit of indexation. All gains up to January 31, 2018 would be grandfathered. The Finance Minister had also proposed introduction of a tax on distributed income on equity-oriented mutual funds at a rate of 10 per cent.

According to NS Venkatesh, Chief Executive, AMFI (Association of Mutual Funds of India), while there has been no reduction in mutual fund inflows at the moment, the industry would have been happier without the imposition of LTCG tax. “At this particular point of time, we do not see any reduction in inflows for the mutual fund industry. We believe it would have been better had the long-term capital gains tax not been there,” he told reporters on the sidelines on a mutual fund seminar organised by the ICC. No long-term impact of the taxes is expected, either.

The mutual fund industry has been growing at nearly 30 per cent annually. While its assets under management at present stand at Rs 22.48 lakh crore, the amount is expected to reach Rs 50 lakh crore in another four years’ time. “Despite LTCG, mutual funds continue to be a good investment option. Moreover, with the introduction of LTCG, losses of one SIP can be offset against another too,” he said.

However, Venkatesh rued the fact that all financial products should have “a level playing field”; that is get the same tax treatment. However, in case of mutual funds, it is not the case. Mutual funds now face LTCG tax and DDT, which make them uncompetitive against ULIPs (Unit Linked Insurance Plans). “There is no level playing field between ULIPs and mutual funds in terms of tax incidence,” he said.

Accordingly, AMFI has represented to the Centre urging them to reconsider the long-term capital gains tax and dividend distribution tax for the mutual fund industry.

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