Budget Tax Proposals Not To Impact Mutual Fund Industry: Franklin Templeton

The proposed changes in Dividend Distribution Tax (DDT) and the new income tax system announced in the budget will not have any adverse impact on the mutual fund industry that showed resilience and maintained robust growth amid economic headwinds, a senior mutual fund official said.

After the Union Budget was presented on February 1, there had been some apprehensions on the growth of MF sector in the coming days.

Budget 2020 has proposed to make dividend income from mutual funds taxable in the hands of the recipient instead levying on companies and MFs, and withdrawn certain exemptions to get the benefit of lower tax slabs.

"Both DDT and new income tax proposals will not have any adverse impact on the mutual fund industry," Franklin Templeton India director (sales) Peshotan Dastoor told PTI in an interview.

The quantum of investment through equity-linked savings scheme for tax purpose is just about two per cent amounting to around Rs 3,000 crore, out of the 1.4 lakh crore inflow in 2019, he said.

But, the share of investments in insurance plans is much larger for getting tax benefits. There are apprehensions that the new income tax proposals will not encourage people to invest for saving tax, the official said.

Investors in lower income brackets will benefit from tax announcement as they will have to pay lower tax against 30 per cent in the earlier regime.

Speaking about the DDT impact, Dastoor said, total portfolio in dividend category is less than 15 per cent of the total MF assets as the majority investors invest for three years and above for long term capital gains.

Moreover, the dividend has to be more than Rs 5,000 a year for tax deducted at source (TDS) on dividend and even then it can be claimed back by filing returns if their total income is not taxable.

In recent years, share of individual investors in the MF industry had jumped to 54 per cent in both equity and debt segment, Dastoor said.

The official said number of investors in direct plans had jumped, which constitutes 44 per cent of the assets under management (AUM).

"This share of the industry is expected to inch higher to 55-60 per cent given the trend led by the millennials who are investing through digital mode," Dastoor said.

"The AUM of the Indian MF now stands at Rs 26.5 lakh crore, which is 20 per cent of the total banking industry," he said.

In 2018, the AUM was Rs 22.86 lakh crore.