New Delhi, Feb. 23 (PTI): Sebi has proposed a new Mutual Fund Linked Retirement Plan (MFLRP), which is expected to generate over Rs 18,000 crore annual inflows into the capital markets.
The MFLRP is similar to the hugely-popular 401 (k) pension plans in the US, which acts as additional retirement savings for citizens beyond the pension plans provided by the government and their employers.
Along with tax benefits, these plans are also known to provide good returns to their investors. Total investments in these plans are estimated to be a staggering amount of about $2.5 trillion (over Rs 150 lakh crore).
Sebi wants the government to provide tax incentives for the MFLRP schemes and expects them to become a major tool for channelising household savings into capital markets.
According to a Sebi proposal, the government can provide tax breaks on investment up to Rs 50,000 in MFLRPs, or alternatively enhance the limit under Section 80C of the income tax act to Rs 2 lakh to help such investments become eligible for benefits.
At present, Section 80C provides tax breaks on investments totalling Rs 1 lakh in certain investment products.
Mutual funds attract only a small portion (2.5 per cent) of household savings in India, unlike the US where this ratio stands at nearly 44 per cent
In the US, mutual funds account for over $6 trillion (over Rs 370 lakh crore), or about 28 per cent of nearly $22 trillion pension market.
Sebi said that schemes similar to the 401 (k) could be found in many other jurisdictions, where tax-related and other incentives by the government had led to significant increase in share of long-term retail money in mutual funds.