MFs lobby to tap goldsellers

The yellow metal could just provide an inflow lifeline to the ailing mutual fund (MF) industry, faced with at least 10 months of continuous redemptions in its equity funds. The industry body, the Association of Mutual Funds in India (AMFI), has written to both the government and the Securities and Exchange Board of India (Sebi) with a proposal to tap money from people who are selling their gold following a run-up that pushed the metal to record highs of `32,500 for 10 grams in November.

The commodity is still trading over the Rs30,000 mark, closing at `30,440 on Friday in the Mumbai market, having jumped over 80% over the past three years.

There’s a tax aspect too in the proposals sent a couple of weeks ago. AMFI has pitched for tax exemption on capital gains from the sale of gold provided the same is invested in equity MFs. Long-term capital gains on gold are taxed at 20% for those who have held it for at least three years while short-term gains are added to the person’s income and taxed according to the tax slab. 

“There could be a lot of people who are looking to book profits after the run-up in gold. We have suggested that they could be given a tax break if they invest the money in mutual funds with a lock-in,” said a person familiar with the matter. The lock-in could be around three years, the person said.

Incidentally, the industry has suggested a tweak to its own lock-in period product and demanded that the Equity Linked Savings Scheme (ELSS) be removed from section 80C and be granted an exemption in its own right. The scheme grants tax exemptions to investors who agree to lock in their capital for three years. “The 1 lakh limit is often exhausted with insurance premiums, public provident fund and other investments. It makes sense to have a separate section for equity funds. This could easily attract Rs8,000–10,000 crore in inflows for these funds,” said the person.

Interestingly, the industry is also hopeful of a tax break different from the one under the government’s Rajiv Gandhi Equity Savings Scheme which provides relief for investments in mutual funds that fulfill certain criteria. The catch is the Rajiv Gandhi scheme is only open to first-time equity investors with a maximum annual income of Rs10 lakh and has an investment limit of Rs50,000.

“A separate section would help tap money from regular investors and those from every income group,” the person said. ELSS schemes have total assets under management of Rs25,027 crore, according to the latest AMFI data.