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Friday, August 15, 2014

Mutual Funds in Union Budget 2014

 

Mutual Funds in Union Budget 2014 

 

The Union Budget is a mixed bag for the mutual fund industry.

The Union Budget 2014 had no major surprises for the mutual fund industry. The only good news from the Finance Minister Arun Jaitley's speech was the hike in investment limit in section 80 C of the Income Tax Act from Rs. 1 lakh to Rs. 1.50 lakh.

Here's a lowdown on how the proposed measures in the budget would impact the mutual fund industry.

What's good?

1) 80 C investment limit hiked to from Rs. 1 lakh to Rs. 1.50 lakh.

Impact: This can boost investments in ELSS category

2) Uniform KYC for investing in all financial instruments and single operating demat account will be introduced, which will allow transactions of all financial assets.

Impact: This will do away with the requirement to perform multiple KYC for investing in products regulated by different regulators. This will help investors and intermediaries to seamlessly transact across all financial instruments. 

What's bad?

1) 80 C investment limit hiked to from Rs. 1 lakh to Rs. 1.50 lakh.

Impact: Other investment avenues like PPF, insurance schemes, fixed deposits are eligible for tax exemption under Income Tax Act 80 C. This can increase investments in such instruments at the cost of mutual funds.

2) Long term capital gains tax on debt funds has been increased from 10 % to 20. Long term for debt funds would be 36 months, instead of 12 months. 

Impact: This can make debt funds less attractive as the tax rate has been hiked.

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