The Association of Mutual Funds in India (Amfi) has mooted the formulation of a separate Act, the Indian Mutual Fund Act, which will govern all mutual funds including Unit Trust of India (UTI), the countrys largest mutual fund.
At present UTI is governed by the UTI Act. However, it has reworked its internal structure to ensure compliance to the Sebi Mutual Fund Regulations.
Amfi has also suggested the government that to boost investor confidence, mutual funds have to ensure transparency in asset allocation by fund managers and create a separate cadre of agents who understand the funds and are capable of marketing them.
The associations recommendations are as follows:
* The present structure of mutual fund as trust under the Indian Trust Act 1882 requires to be reconsidered and simplified.
* The government should also consider and bring the level-playing field in respect of tax deduction at source incase of income distribution by mutual funds.
It has also been suggested that Amfi should formulate specific proposals regarding taxation of mutual funds and unitholders so that these could be debated when the Parliament discusses the New Income Tax Bill.
* There is a need for removal of one-month lock-in period on money market mutual funds which is impeding the growth of such funds.
* Credit rating of mutual fund schemes should be encouraged so that it helps investors to select income fund with their choice of return and risk.
* Charitable trusts should be allowed to invest in mutual funds and the government should issue a notification to this effect.
* Under the existing RBI norms, foreign institutional investors (FIIs), non-resident Indians (NRIs) and overseas corporate boards (OCBs) require to take a special permission from the apex bank whenever they wish to invest in a mutual fund. This slows down their decision-making process and often results in their not investing in the funds. FII debt funds should be allowed to invest in units of domestic income funds.
* Mutual funds should be allowed to hold securities in their own names with suitable amendments in concerned acts. Despite the exemption granted to mutual funds from income tax, TDS is often deducted by corporates as the securities are held in the names of trustee companies. Subsequently, the fund has to seek refund of taxes from the income tax authorities which consumes lot of time and financial losses to the funds.
* At present, despite being allowed by the Securities and Exchange Board of India (Sebi) to borrow up to 20 per cent of their assets, mutual funds are presently unable to obtain a line of credit from banks. This is because the central bank does not allow banks to lend against assets of the trustee of the fund.
* The central bank should permit banks to lend based on the sponsors AMCs corporate guarantee in lieu of the specific charge on the assets of the mutual fund.
