New Delhi: Assocham has suggested granting permission to Mutual Fund (MF) companies and Financial Institutions (FI) to launch Dedicated Infrastructure Funds (DIFs) with a view to mobilize resources to develop key sectors like power, roads, rail, ports and airports to help the country move a higher growth trajectory of 10% during the 11th plan period.
According to Assocham estimates, $280 billion (Rs11,20,000) to $475 billion (Rs19,00,000) worth of investment is needed to support infrastructure creation in next five years and DIFs can be an ideal model to generate the estimated amount, provided directives are issued to permit mutual fund companies and financial institutions to launch the suggested DIFs.
Finance Minister in his budget proposals for 2007-08 had already hinted at the need to promote the flow of investments to infrastructure sector by permitting domestic mutual funds to launch and operate DIFs. A committee has also been appointed to look into the possibilities of DIFs creation but nothing has so far materialized.
* SEBI in consultation with Finance Ministry should immediately come out with guidelines and directives to enable MFs and FIs to launch funds to attract investments from retail investors in view of credibility that the mutual fund companies have been able to make for themselves for secured investment returns from retail investors.
* Presently, there are 32 assets management companies in mutual funds sector with a mounting asset base. Such companies invite investments in the proposed DIFs to reduce India’s dependence on foreign capital for funding its infrastructure projects.
* Employees Provident Fund Organisations (EPFOs) has also the assets base running into over about $55 billion and if part of it, nearly 10% is permitted to be invested in various MFs proposed DIFs, a good deal of infrastructure funding can come out from them also.
* Likewise, leading FIs should be permitted to release a part of their corpus in proposed DIFs by additionally allowing them to invite deposits from retail investors and then use the money for infrastructure funding as most retail investors invest for a minimum period of 5-7 years for secured returns which government owned agencies can easily provide for.
* Looking at high risks and illiquid nature of proposed DIFs, it is important that some tax incentives to retail investors be granted to motivate them to invest in this suggested instrument.
* Suggested tax incentives and benefits should be provided under Section 80C of income-tax and other relevant sections of the Act. The tax treatment given to the capital gains and dividend income received from such DIF units should be kept at par with other equity mutual fund schemes.
* Suggested DIFs wil create an attractive option for retail investors as well as institutions to invest directly into infrastructure creation in the country. Therefore, in a bid to create suitable environment for retail participation and to encourage broader public participation in DIFs, special benefits should be provided particularly at institutional levels in terms of tax holiday schemes that should run for a minimum of a decade period.