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Consumers to bear service tax burden: AMFI

The hike in expense ratio and tax burden would lower the returns of investors

July 05, 2012 11:09 IST | India Infoline News Service
AMFI (Association of Mutual Funds of India) chief executive HN Sinor said, consumers should bear the burden of 12% service tax on purchase of schemes. Mr Sinor has also asked an increase in the expense ratio to 2.25% from 2.20%—of which 2% is administrative expense and 0.20% is the exit load.

Mr Sinor said after the meeting of the representatives of the mutual fund industry with the government officials. The meeting was called to discuss how to increase retail participation. Mr Sinor has asked the government to increase the total expense ratio to 25 basis points and also allow them to credit the exit load directly to the schemes of the asset management companies so that the MFs do not have to pay it. Expense ratio mostly refers to administrative expenses.

The hike in expense ratio and tax burden would lower the returns of investors. On last Wednesday, the finance ministry emphasised the need to revive the mutual fund industry which has seen assets under management (AUM) remaining stagnant for two years. In November 2009, the MF industry had AUM of Rs. 8.21 trillion compared to Rs. 6.92 trillion at the end of June 2012.

The finance ministry said that it is taking note of the short and medium term issues being faced by the industry in addition to their concerns on tax related matters. The issues like allowing mutual funds to launch pension schemes, provision of tax relief on such products at par with other life insurance schemes and more benefits for those players who wish to provide services in smaller towns were also discussed during the meeting.

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