SEBI gives ultimatum to MFs to merge similar schemes

It might have happened to you when you wanted to invest in mutual funds but got all confused due to numerous schemes in the capital market offered by existing as well as ever growing mutual fund companies. In order to simplify multiple mutual fund products available in the market, SEBI has given clear message that no new schemes to be launched until fund houses merge their existing schemes with similar characteristics. The Indian mutual fund industry currently manages about 715 schemes out of which half are equity based whereas other half provide fixed income. Earlier one scheme’s merger into another was considered as sale resulting in capital gains in the hands of investors. But 2015-16 budget said, merger of schemes will no longer be considered as fresh investment, a move that had the effect of removing the tax obligation on the investor.

Comments:

The step taken by regulator has many advantages some of which are as under:

1.   Less number of schemes will enhance investor’s interest and awareness eventually encouraging higher capital investment.

2.   Tracking of return would be lot easier as comparison among different mutual funds becomes tedious task in the present scenario.

3.   Manageable portfolio of assets, i.e. MFs would be able to focus more on core assets and shredding non-core assets, hence increasing returns.

4.   Lesser promotion and advertisement costs.

         5. Lesser schemes = Increased accountability, disclosure

MAT to be applicable on FIIs and FPIs

The Income Tax department has issued demand notices of MAT to around 100 FIIs and more than 50 FPIs. Department has been reopening cases as it believes that income has escaped the assessment in the previous years based on decision given by Authority of Advance Ruling a quasi-judicial body, in the favour of government stating that MAT shall be applicable to FIIs and FPIs. FPIs are currently paying 15% tax on capital gains for less than 12 months and no tax on long term capital gains as the same are STT paid. Investors are treating issuance of such notices as retrospective action on the part of government however the government has exempted applicability of MAT from the FY 16-17. IT department believes that FPIs are required to maintain accounts under the Act and hence liable to pay tax on book profits. Finance Minister Mr. Arun Jaitely comments on the recent development that there has been no retrospective applicability of MAT and every demand of tax is not tax terrorism and opposite of tax terrorism doesn’t mean tax haven. Finance Minister also feels that FIIs and FPIs cannot escape their moral duty to pay tax on the grounds of tax terrorism.