FM liberates the MF investor

05 March 2005

Section 88 goes for good, giving smaller investors the incentive to invest in equity markets. Archana R D reports

Most financial observers and market analysts give full marks to finance minister Palaniappan Chidambaram for having delivered a 'pro-equities' budget this year. Thanks to the long-standing recommendations of the Kelkar Committee, tax reliefs under section 88 are now history. Taxpayers now have the choice to make more flexible investment decisions.

"Tax payers should seriously consider investing their money in mutual funds now that the FM has revised them as deductions (earlier investing in mutual funds only qualified for a rebate)," says legendary former executive trustee of UTI, A P Kurian, now the chairman of the Association of Mutual Funds India (AMFI).

Now under the new section 80C investments in mutual funds, along with others, will be covered under an especially notified scheme eligible for tax deductions as savings up to a Rs1-lakh limit. So you now have a pool of Rs1 lakh (earlier the limit was Rs 70,000 for all deductible investments).

This Rs 1 lakh limit under section 80 covers of investments in pension schemes (section 80 CCC), tax reliefs under mutual funds (employee-linked savings schemes or ELSS), government bonds, pension funds, provident funds and insurance policies, among others, without any specified demarcation. This new Rs 1 lakh limit is called section 80 CCE.

Kurian also points out that, " Opting for mutual funds is not as risky as getting into the equity markets directly or 'unarmed'. MFs have the expertise and risk management provisions and this needs to be grabbed by the taxpayer."

This year's tax reforms hint at a brighter future for MFs, as now the regular tax payer has the option of investing in mutual funds to also reduce taxes, besides as an investment. "Though we will have to compete with other tax saving avenues like NSC and PPF we still have our USP which will attract investors who want to earn more from their savings," says Kurian.