Mutual Funds Might Run Pension Schemes: Ajit Menon, CEO, PGIM India MF

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In terms of tax eligibility, all mutual funds registered with SEBI should be allowed to start retirement or pension plans, i.e., ‘Mutual Fund Linked Retirement Plan’ (MFLRP).

There are three major investment avenues in India for post-retirement pension income. These are:

(i) National Pension System (NPS).

(ii) Retirement / Pension Schemes provided by Mutual Funds.

(iii) Insurance-linked pension plans offered by insurance companies.

NPS makes for a great retirement savings scheme. If your goal is to save for other needs such as child education and daughter’s marriage, this may not be the best plan to invest in. For all these purposes, PPF scores as a better investment plan than NPS. The National Pension System Trust is one of the fastest-growing pension regulatory and development authorities in the world. The National Pension System is one of the most important financial institutions in India

Mutual Fund Retirement Benefit or Pension Schemes are eligible for tax benefit under Section 80C. However, each scheme must be reported to the Central Council for Direct Taxes (CBDT) and is eligible for tax breaks on a case-by-case basis, which involves a lengthy bureaucratic process.

In terms of tax eligibility, all mutual funds registered with SEBI should be allowed to start retirement or pension plans, i.e., ‘Mutual Fund Linked Retirement Plan’ (MFLRP), which should be eligible for tax benefits under Sec. 80CCD (1) and 80CCD(1B) of the Income Tax Act, 1961, the principle of exemption-exempt (e-e-e) on the principle of equal tax treatment for like products.

Instead, the CBDT, in consultation with the SEBI, will issue appropriate guidelines or notices in respect of the ELSS, eliminating the need for each mutual fund to apply individually to the CBDT for notification of funds under the Retirement category. Eligible for tax benefit under Section 80CCD.

Therefore, there is a strong potential for mutual funds to bring retirement benefit or pension schemes under Section 80CCD instead of Section 80C to ensure tax treatment equity and ensure a level playing field for pension schemes.

What I am trying to lead home to is that long-term products such as mutual funds in the retirement segment can be a stimulus to bring home savings into the securities market and deepen markets. Such depth brought by domestic firms will help balance market volatility and reduce reliance on foreign portfolio investments (FPIs).

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