Boost demand of Shariah-compliant MFs by giving tax relief:
Experts
01/12/2014 01:16
To boost the demand for Shariah compliant mutual
funds in the country, government should provide income tax relief on investment
in such products along the lines of equity linked savings schemes (ELSS),
experts have said as per the PTI report.
Shariah laws prohibit one from
investing in companies dealing with businesses like alcohol and tobacco, among
others. They also do not allow interest payments.
SBI Mutual Fund is
launching an Shariah-compliant diversified equity fund on December 1, aimed at
attracting investments from the country's large Muslim population. The scheme
closes on December 15 and the fund is likely to reopen on or before December
26.
The leading asset management firm will become the fourth fund house in
India to have an Islamic equity fund after Goldman Sachs MF, Taurus MF and Tata
MF.
"There is no tax incentive on investment by the government for any of the
Shariah compliant equity funds. Had there been separate tax incentive for such
schemes, they must have attracted more and more people," Economic Initiatives
founder and consultant for participatory finance serving Basix social enterprise
group, Syed Zahid Ahmad said.
Industry officials say that tax incentives will
give a much-needed boost to such products.
Tata Mutual Fund's Senior Fund
Manager Pradeep Gokhale said the Tata Ethical fund offers investors
(irrespective of their religious preferences) an avenue to own high quality
growth stocks that perform consistently across market cycles.
"Unlike tax
saving mutual funds and equity linked saving schemes (ELSS), there is no tax
incentive on investment in these funds. It is despite the fact that only capital
gain and dividends are tax free in these funds," Gokhale said.
There is a big
niche investor base who is not investing their money anywhere else and we want
to bring such money into the capital market through this scheme, SBI MF Chief
Marketing Officer D P Singh said.
As applicable to other equity schemes, all
returns in this type of fund, if kept for more than 12 months will be treated as
long term capital gains, which is taxed as nil.
Shariah compliant equity
index or BSE Sharia Index has outperformed the BSE Sensex by 7-8% in the last
year, he added.
The BSE launched a specialised index, the S&P BSE 500
Shariah last year, which has given an annual return of 44.55% as against the
annual return given by S&P BSE Index at 39.70% as on November 28, the BSE
site said.
"The investible universe typically consists of companies that have
high return ratios, strong cash generation to support the growth of their
businesses and very low leverage. Such stocks give consistent and superior
returns over a complete market cycle with low volatility," Gokhale said.
