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Mutual Funds - Will mutual fund investors have to pay service tax?

14 May 2004

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The service tax issue looms large on the mutual fund industry. And who will have to finally pick up the tab?

A solution to the same is yet to be worked out because the question of who is actually the beneficiary in this case – whether it is the asset management company or the investor remains to be decided.

As of now reports state that asset management companies (AMCs) have decided to fork out a lumpsum towards service tax. And that the mutual fund investor will not be burdened with an added cost.

But the matter does not end there. At some point will not AMCs consider passing on the said cost to investors?

Even otherwise, the expenses on funds are quite high and any further hike may act as a discouragement to investors choosing mutual funds to park their funds.

The Securities and Exchange Board of India (SEBI) has laid down limits on the expenses that a fund can charge.

The total recurring expense that can be charged to the scheme is 2.5 percent for the first Rs 100 crore mobilised, 2 percent and 1.75 percent for subsequent mop-ups in an equity scheme.

To add to it there are damaging reports about fund houses violating the norms laid down by SEBI by following unethical practices. Such instances can only mar investor trust and push individuals to switch over to other investment avenues for good.

As per the norms laid down by SEBI the total expenses of a scheme, excluding issue or redemption charges, should be not more than 2.5 percent of the average weekly net assets.

This leaves little scope for further additions. In such a situation, perhaps all that can be done is to squeeze in the service tax component from within the annual expenses. But will mutual funds agree to that one?

Source: dwt BACK

To be added soon

Priyanshu B. Tanna

SEBI registered IFA

ARN119467 & EUIN E-183966

To be added soon

Bharat Tanna

SEBI registered IFA

ARN26176 & EUIN E-044509

To be added soon

Kundan B. Tanna

SEBI registered IFA

ARN294073 & EUIN E-553599

Risk factor

Risk Factors – Investments in Mutual Funds are subject to Market Risks. Read all scheme related documents carefully before investing. Mutual Fund Schemes do not assure or guarantee any returns. Past performances of any Mutual Fund Scheme may or may not be sustained in future. There is no guarantee that the investment objective of any suggested scheme shall be achieved. All existing and prospective investors are advised to check and evaluate the Exit loads and other cost structure (TER) applicable at the time of making the investment before finalizing on any investment decision for Mutual Funds schemes. We deal in Regular Plans only for Mutual Fund Schemes and earn a Trailing Commission on client investments. Disclosure For Commission earnings is made to clients at the time of investments. Option of Direct Plan for every Mutual Fund Scheme is available to investors offering advantage of lower expense ratio. We are not entitled to earn any commission on Direct plans. Hence we do not deal in Direct Plans.

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