Regulator charts plan to grow MF industry to Rs.20 trillion in 5 years
The
Securities and Exchange Board of India (Sebi) wants tax incentives for
investments in mutual funds and new classes of such funds to expand the
industry from Rs.8 trillion now to Rs.20 trillion in five years.
The industry has stagnated over the past four years after Sebi
instituted a ban on so-called entry loads, or sales charges paid to
distributors of mutual funds.
The plan was conceptualized last month by Sebi’s mutual fund advisory committee.
“..With a long term policy in hand, huge growth may be targeted in assets under management from (the) present Rs.8,00,000 crore to Rs.20,00,000 crore in a period of five years,” Sebi said in a board note reviewed by Mint.
The
note added that this growth would see an increase in the number of
investors and distributors, and more investments from so-called B-class
towns.
Over
the past two years, Sebi has taken a number of measures to re-energize
the 44-company industry. In September 2012, Sebi allowed mutual funds to
levy additional charges on existing schemes to bear the cost of
distribution across locations beyond the top 15 cities in the country.
That
doesn’t seem to have helped. According to data from industry lobby group
Association of Mutual Funds of India, or Amfi, the top 15 cities
accounted for 87% of the assets under management as on 31 December.
New retirement plans
In an
effort to attract long term savings into mutual funds, one of Sebi’s
proposals is to introduce the so-called mutual fund-linked retirement
plan, which will be akin to insurance-oriented retirement benefit plans.
The
note said that such plans, similar to the popular 401K plan in the US,
can be introduced with tax incentives in India too. The 401K plan in the
US allows employees to have their retirement funds managed by managers
of their choice. It allows the employee to choose an investment product
of his or her choice through the employer’s 401K plans.
“There
is a huge scope for growth in India’s retirement benefits market owing
to low existing coverage... and a large workforce in the unorganized
sector, vast majority of which has no retirement benefits,” Sebi said.
Sebi estimated that even if 10% of the 36 million tax-payers in the country invest an average of Rs.50,000 in such retirement plans, it would result in an annual inflow of Rs.18,000 crore into mutual funds.
Sebi has proposed that the government allow a tax benefit of Rs.50,000 for investments in such plans, over and above the existing Rs.1 lakh limit on investments eligible for tax benefits.
Such new products
will be so designed that anyone between 18 and 55 years of age can
invest in them, according to Sebi, which envisages two types of mutual
fund-linked retirement plans: those that own securities directly, and
those that serve as a fund of funds and invest in existing diversified
schemes of mutual funds.
Sebi has proposed that investments in such plans have a minimum lock-in period.
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