Debt funds new darlings of HNIs

© Provided by The Times of India

The finance minister’s Budget proposal to tax high-value insurance products, which were being used as an investment plan by rich people to enjoy tax arbitrage, could make debt mutual funds more attractive. Also, the FM’s push for increased formalisation of the financial sector may bring in more inflows into the MF schemes, industry players said.

There were insurance products which guaranteed tax-free returns to investors and rich individuals who had exhausted all tax-saving options under section 80CC of the Income Tax Act and were using these products. Plugging this loophole could now force these rich investors to look for other options. “Debt mutual funds could turn out to be an attractive proposition for these rich investors,” said D P Singh, deputy MD & chief business officer, SBI Mutual Fund.

Another positive for the fund industry from the Budget could be the government’s increasing push for formalisation of the economy and discourage usageof cash. “The reorganisation of the income tax slabs and the hike in initial exemption limit will bring in more people within the tax net. This will also lead tosome increase in savings at the macro level,” Singh said. “I see a major part will be invested in mutual funds as going forward more people with surplus funds will look for investment avenues. ”

Industry players within the fund industry also feel that the government’s thrust to simplify the KYC process to also aid mutual fund investment.