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).

Union Finance Minister, Arun Jaitley, in his Budget speech, has proposed 10% tax on long-term capital gains exceeding ₹1 lakh without allowing the benefit of indexation. All gains up to January 31, would be grandfathered. The Finance Minister has 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 in 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 of a mutual fund seminar organised by the Indian Chamber of Commerce.

No long-term impact of the taxes is expected either.

₹50-lakh crore AUM

The mutual fund industry has been growing at nearly 30 per cent annually. While its asset under management at present stands at ₹22.48 lakh crore, the amount is expected to reach ₹50 lakh crore in four years time.

“Despite LTCG, mutual funds continue to be a good investment option. Moreover, with the introduction of LTCG tax, losses in one SIP can be off-set 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, it is not the case with mutual funds.

Uncompetitive against ULIPs

Mutual funds now face LTCG tax and DDT which makes it 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.