Description
This is a PPT explaining the mutual funds industry in india.
MUTUAL FUND INDUSTRY IN INDIA
Emergence of Mutual fund Industry in India
•In 1964 government started the Unit Trust of India (UTI) with a view to argument saving within the country and to channellise this saving to the capital market. This was set up with the Unit Trust of India act 1963.
•Launched its first open ended equity scheme in 1964 called unit 64.
•1987 other public sector banks and insurance companies were permitted to promote mutual funds scheme.
• The mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under.
• First Phase - 1964-87
• Second Phase - 1987-1993 (Entry of Public Sector Funds)
• Third Phase - 1993-2003 (Entry of Private Sector Funds) • Fourth Phase - since February 2003
Structure of the Mutual fund Industry
• Set up is made up of trustee, sponsors asset management company and a custodian
• AMC manages funds by making investments in various types of securities • Custodian holds the securities of the various schemes of the funds in its custody • Trustees monitors performance and compliance of the SEBI regulations
Graphical Representation:
SPONSOR
MANAGEMENT AND ADVISARY SERVICES
MUTUAL FUNDS
ASSET MANAGEMENT COMPANY
CUSTODIAN
TRUSTEE COMPANY
SCHEME
SCHEME
SCHEME
PORTFOLIO COS.
PORTFOLIO COS.
PORTFOLIO COS.
Regulatory Framework
•Mutual Funds •Sponsor •Trustees •Asset Management Company •Custodian •Schemes •Investment Criteria •Limitations on Fees & Expenses
TAXATION OF MUTUAL FUNDS AND INVESTORS
(A) Taxation of Mutual Fund
• As per the provisions of Section 10(23D) of the ITA. An Indian Mutual Fund registered with SEBI, or sponsored by specified Public sector Banks / Financial Institutions & approved by the Central Govt. or authorized by the RBI are TAX EXEMPT. Under the provision of Section 196(iv), of the ITA. The mutual fund will receive all income without any deduction of tax at source.
•
(B) Taxation of Resident Unit Holders (i) Capital Gains
Under section 112 of the ITA, capital gains chargeable on transfer of long-term capital assets are subject to tax @ 20%. The capital gains will be computed by deducting the following amounts from the sale consideration: Expenditure incurred wholly and exclusively in connection with such transfer. (ii) Dividends Under Section 194K of the ITA, a mutual fund is required to deduct tax at source @ 10.5% (including surcharge of 5%) on any income credited or paid on or after June 1, 2002 in excess of Rs. 1000 during the financial year. However, if the unit-holder submits a declaration under Section 197A of the ITA, then no tax will be deducted subject to the condition that income so distributed does not exceed the max income not chargeable to tax under the ITA. No TDS from capital gains arising at the time of repurchase or redemption of units.
(C) Taxation Of Non-Resident Individual Unit Holders (i) Capital Gains As per section 112 of the ITA, Any Long-Term capital gains received by a non-resident individual investor is subject to tax @ 10.5% (including a surcharge of 5%) In respect of Short-term capital gains, tax is required to be deducted at source @ 31.5% (including of a surcharge of 5%)
(ii) Dividends As per section 196A of the ITA, a mutual fund is required to deduct tax at source @ 21% (including a surcharge of 5%) on any income credited or paid on or after June 1, 2002. However, if the provisions of the Double Taxation Avoidance Agreement (“DTAA”) are more beneficial, then the tax deducted would be at the rate provided in the DTAA.
(D) Taxation of Non-Resident Unit holders being a company (i) Capital Gains As per section 112 of the ITA, Any Long-Term capital gains received by a non-resident individual investor, being a company, is subject to tax @ 10.5% (including a surcharge of 5%) In respect of Short-term capital gains, tax is required to be deducted at source @ 42% (including of a surcharge of 5%) (ii) Dividends As per section 196A read with section 115A of the ITA, a mutual fund is required to deduct tax at source @ 21% (including a surcharge of 5%) on any income credited or paid on or after June 1, 2002. However, if the provisions of the Double Taxation Avoidance Agreement (“DTAA”) are more beneficial, then the tax deducted would be at the rate provided in the DTAA.
(E) Foreign Institutional Investors
(i) Capital Gains As per section 115AD of the ITA, Any Long-Term capital gains received by a foreign institutional investor (“FII”), being a company, is subject to tax @ 10.5% (including a surcharge of 5%) In respect of Short-term capital gains, tax is required to be deducted at source @ 31.5% (including of a surcharge of 5%)
(ii) Dividends A mutual fund is required to deduct tax at source at the rate of 21% (including a surcharge of 5%) on any dividends paid to an FII.
OVERSEAS INVESTMENT IN THE DOMESTIC MUTUAL FUND SECTOR
• Setting up your own AMC and Mutual Fund
• Investing via a Domestic Mutual Fund (“Offshore Fund Structure”)
• Foreign Institutional Investment(“ FII”) in the Indian mutual fund market • Investment Into The Mutual Fund Market Via Mauritius
Setting AMC
• As per the regulations, there is no restrictions for any entry of foreign asset manager & several international players into India.
• For Example: Prudential of UK, Alliance, ANZ Grind lays, ING Baring ,etc. have set up shops in India
• As per the guidelines by the FIPB issued, its stated that the asset management activity is a part of the definition of non-banking finance activity for foreign investment into India.
• In Non-Banking Finance Companies (“NBFCs”), the capitalization norms are as follows:
• Foreign Holding as a percentage of Equity Minimum Capital Up to 51% foreign equity Between 51% and 75% More than 75% foreign equity : US$ 500,000 : US$ 5 million : US$ 50 million
Foreign Institutional Investment (“FII”)
• Sept 1992,the government of India guidelines-FIIs should be registered with the SEBI with the general position with RBI under the FEM. • FII’s are require to complies the provision of SEBI, Regulation 1985. • SEBI &RBI regulation restrict portfolio investment in Indian companies by FII, NRI & Overseas Corporate Office. All of which refers to Foreign Portfolio Investors
RECENT DEVELOPMENTS
• Investments in foreign debts: As per the circular issued by SEBI Mutual funds have been allowed to invest in foreign debt securities with highest credit ratings. In countries with fully convertible currencies provided the guidelines laid down in the circular are complied with. However such investments is permitted subject to a cap of of 10% of the net asset of the mutual funds for making investment in foreign debts securities. • Investment by residents in foreign securities:
The reserve bank of India has recently permitted Indian residents ,including mutual funds subject to a cap of USD I bn. Such investments have to be mad in the foreign companies who share are listed on an overseas exchange and which has at lest 10% holding in an Indian economy which is also listed on the Indian stock exchange.
• Compulsory certificate of sales/marketing personnel: SEBI together with the association of Mutual fund of India has made it mandatory for the sales and marketing personnel of mutual fund to obtain a certificate. This requires such personnel to appear for a test through AMFI.
• Mutual fund Schemes for Real estates:
AMFI has recently submitted to SEBI draft guidelines for allowing mutual funds to invest in real estates. REITS are a popular investment vehicles in the development market of US and the UK and has contributed significantly to the development of their economy. Its expected shortly that SEBI would notify the new sets of guidelines.
• Splitting up of UTI: An ordnance was recently passed by Indian government which repealed the Unit trust of India Act 1963. Thereby splitting up of UTI in two parts namely. UTI I and UTI II. UTI being the first mutual fund set up of India has always been a symbol of trust and is currently the largest Mutual fund in India. UTI I now consists of all assured return scheme whereas UTI I has the government guarantee and will be managed by the AMC formed by LIC of India, BOB and PNB. UTI II now consist of all other schemes which is NAV linked.
THANK YOU
doc_561450247.ppt
This is a PPT explaining the mutual funds industry in india.
MUTUAL FUND INDUSTRY IN INDIA
Emergence of Mutual fund Industry in India
•In 1964 government started the Unit Trust of India (UTI) with a view to argument saving within the country and to channellise this saving to the capital market. This was set up with the Unit Trust of India act 1963.
•Launched its first open ended equity scheme in 1964 called unit 64.
•1987 other public sector banks and insurance companies were permitted to promote mutual funds scheme.
• The mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under.
• First Phase - 1964-87
• Second Phase - 1987-1993 (Entry of Public Sector Funds)
• Third Phase - 1993-2003 (Entry of Private Sector Funds) • Fourth Phase - since February 2003
Structure of the Mutual fund Industry
• Set up is made up of trustee, sponsors asset management company and a custodian
• AMC manages funds by making investments in various types of securities • Custodian holds the securities of the various schemes of the funds in its custody • Trustees monitors performance and compliance of the SEBI regulations
Graphical Representation:
SPONSOR
MANAGEMENT AND ADVISARY SERVICES
MUTUAL FUNDS
ASSET MANAGEMENT COMPANY
CUSTODIAN
TRUSTEE COMPANY
SCHEME
SCHEME
SCHEME
PORTFOLIO COS.
PORTFOLIO COS.
PORTFOLIO COS.
Regulatory Framework
•Mutual Funds •Sponsor •Trustees •Asset Management Company •Custodian •Schemes •Investment Criteria •Limitations on Fees & Expenses
TAXATION OF MUTUAL FUNDS AND INVESTORS
(A) Taxation of Mutual Fund
• As per the provisions of Section 10(23D) of the ITA. An Indian Mutual Fund registered with SEBI, or sponsored by specified Public sector Banks / Financial Institutions & approved by the Central Govt. or authorized by the RBI are TAX EXEMPT. Under the provision of Section 196(iv), of the ITA. The mutual fund will receive all income without any deduction of tax at source.
•
(B) Taxation of Resident Unit Holders (i) Capital Gains
Under section 112 of the ITA, capital gains chargeable on transfer of long-term capital assets are subject to tax @ 20%. The capital gains will be computed by deducting the following amounts from the sale consideration: Expenditure incurred wholly and exclusively in connection with such transfer. (ii) Dividends Under Section 194K of the ITA, a mutual fund is required to deduct tax at source @ 10.5% (including surcharge of 5%) on any income credited or paid on or after June 1, 2002 in excess of Rs. 1000 during the financial year. However, if the unit-holder submits a declaration under Section 197A of the ITA, then no tax will be deducted subject to the condition that income so distributed does not exceed the max income not chargeable to tax under the ITA. No TDS from capital gains arising at the time of repurchase or redemption of units.
(C) Taxation Of Non-Resident Individual Unit Holders (i) Capital Gains As per section 112 of the ITA, Any Long-Term capital gains received by a non-resident individual investor is subject to tax @ 10.5% (including a surcharge of 5%) In respect of Short-term capital gains, tax is required to be deducted at source @ 31.5% (including of a surcharge of 5%)
(ii) Dividends As per section 196A of the ITA, a mutual fund is required to deduct tax at source @ 21% (including a surcharge of 5%) on any income credited or paid on or after June 1, 2002. However, if the provisions of the Double Taxation Avoidance Agreement (“DTAA”) are more beneficial, then the tax deducted would be at the rate provided in the DTAA.
(D) Taxation of Non-Resident Unit holders being a company (i) Capital Gains As per section 112 of the ITA, Any Long-Term capital gains received by a non-resident individual investor, being a company, is subject to tax @ 10.5% (including a surcharge of 5%) In respect of Short-term capital gains, tax is required to be deducted at source @ 42% (including of a surcharge of 5%) (ii) Dividends As per section 196A read with section 115A of the ITA, a mutual fund is required to deduct tax at source @ 21% (including a surcharge of 5%) on any income credited or paid on or after June 1, 2002. However, if the provisions of the Double Taxation Avoidance Agreement (“DTAA”) are more beneficial, then the tax deducted would be at the rate provided in the DTAA.
(E) Foreign Institutional Investors
(i) Capital Gains As per section 115AD of the ITA, Any Long-Term capital gains received by a foreign institutional investor (“FII”), being a company, is subject to tax @ 10.5% (including a surcharge of 5%) In respect of Short-term capital gains, tax is required to be deducted at source @ 31.5% (including of a surcharge of 5%)
(ii) Dividends A mutual fund is required to deduct tax at source at the rate of 21% (including a surcharge of 5%) on any dividends paid to an FII.
OVERSEAS INVESTMENT IN THE DOMESTIC MUTUAL FUND SECTOR
• Setting up your own AMC and Mutual Fund
• Investing via a Domestic Mutual Fund (“Offshore Fund Structure”)
• Foreign Institutional Investment(“ FII”) in the Indian mutual fund market • Investment Into The Mutual Fund Market Via Mauritius
Setting AMC
• As per the regulations, there is no restrictions for any entry of foreign asset manager & several international players into India.
• For Example: Prudential of UK, Alliance, ANZ Grind lays, ING Baring ,etc. have set up shops in India
• As per the guidelines by the FIPB issued, its stated that the asset management activity is a part of the definition of non-banking finance activity for foreign investment into India.
• In Non-Banking Finance Companies (“NBFCs”), the capitalization norms are as follows:
• Foreign Holding as a percentage of Equity Minimum Capital Up to 51% foreign equity Between 51% and 75% More than 75% foreign equity : US$ 500,000 : US$ 5 million : US$ 50 million
Foreign Institutional Investment (“FII”)
• Sept 1992,the government of India guidelines-FIIs should be registered with the SEBI with the general position with RBI under the FEM. • FII’s are require to complies the provision of SEBI, Regulation 1985. • SEBI &RBI regulation restrict portfolio investment in Indian companies by FII, NRI & Overseas Corporate Office. All of which refers to Foreign Portfolio Investors
RECENT DEVELOPMENTS
• Investments in foreign debts: As per the circular issued by SEBI Mutual funds have been allowed to invest in foreign debt securities with highest credit ratings. In countries with fully convertible currencies provided the guidelines laid down in the circular are complied with. However such investments is permitted subject to a cap of of 10% of the net asset of the mutual funds for making investment in foreign debts securities. • Investment by residents in foreign securities:
The reserve bank of India has recently permitted Indian residents ,including mutual funds subject to a cap of USD I bn. Such investments have to be mad in the foreign companies who share are listed on an overseas exchange and which has at lest 10% holding in an Indian economy which is also listed on the Indian stock exchange.
• Compulsory certificate of sales/marketing personnel: SEBI together with the association of Mutual fund of India has made it mandatory for the sales and marketing personnel of mutual fund to obtain a certificate. This requires such personnel to appear for a test through AMFI.
• Mutual fund Schemes for Real estates:
AMFI has recently submitted to SEBI draft guidelines for allowing mutual funds to invest in real estates. REITS are a popular investment vehicles in the development market of US and the UK and has contributed significantly to the development of their economy. Its expected shortly that SEBI would notify the new sets of guidelines.
• Splitting up of UTI: An ordnance was recently passed by Indian government which repealed the Unit trust of India Act 1963. Thereby splitting up of UTI in two parts namely. UTI I and UTI II. UTI being the first mutual fund set up of India has always been a symbol of trust and is currently the largest Mutual fund in India. UTI I now consists of all assured return scheme whereas UTI I has the government guarantee and will be managed by the AMC formed by LIC of India, BOB and PNB. UTI II now consist of all other schemes which is NAV linked.
THANK YOU
doc_561450247.ppt