Fund houses are rushing to file offer documents with SEBI to launch Mutual Fund Linked Retirement Plans (MFLRPs) on the hope of getting tax incentives from the upcoming Budget. LIC Nomura, Birla Sun Life and DSP BlackRock have filed draft offer document with SEBI to launch their retirement plans.
Axis, HDFC, Reliance, Pramerica and SBI had already filed draft offer documents with SEBI to launch their retirement linked mutual funds and are awaiting approval from The Central Board of Direct Taxes (CBDT). So far, only Reliance Mutual Fund has got CBDT nod to launch its retirement fund. Only two fund houses - Franklin Templeton (Templeton India Pension) and UTI (UTI Retirement Benefit Pension) have pension schemes which were approved long ago.
A senior official from one of the fund houses which has filed draft offer document with SEBI said that the industry is hopeful that the Finance Minister would come out with clarity on MFLRP. “We have already reached out to the Finance Ministry through SEBI on this issue. We are very hopeful of hearing something on MFLRP during the upcoming Budget.”
Last year, the draft budget document had a mention on uniform tax treatment for pension fund and mutual fund linked retirement plan. Though the union budget 2014 had no mention on this issue, a mere mention of MFLRP indicates that government intends to do something on this front.
A recent media report published in the Economic Times suggests that the government is looking at SEBI’s proposal to introduce mutual fund linked retirement plans (MFLRP) under 80 CCD. Simply put, Section 80CCD of the Income Tax Act (just like National Pension Scheme) provides tax benefits over and above the 80C limit which is currently Rs. 1.5 lakh annually. Investors get tax deduction of up to 10% of salary, subject to up to Rs.1 lakh on contribution towards pension funds. However, NPS doesn’t come under EEE (exempt, exempt and exempt) status.
Nilesh Sathe, Chief Executive Officer, LIC Nomura too expects that the FM would put MFLRP under section 80CCD of Income Tax Act. “We are hopeful that the FM would put MFLRP under Section 80CCD. However, like NPS, MFLRP could also come under EET status.”
If this becomes a reality, fund houses can launch retirement linked mutual fund plans directly by getting approval from SEBI. Currently, fund houses need to take CBDT’s approval. Industry officials and financial advisors feel that such a move would benefit all stakeholders.
The retirement products which are currently available in the market are debt oriented. MFLRP can provide aggressive portfolio to investors through equity exposure for wealth creation.
More retirement products will ensure that investors get better choice. For instance, Axis and SBI which had earlier filed draft offer documents with SEBI to launch their MFLRPs have some unique features like insurance coverage, annuity etc.
