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Tuesday, June 29, 2021

Increase to overseas investment limits for mutual funds

The Securities and Exchange Board of India has announced amendments to the overseas investment limits for mutual funds. The amendments provide that:

  • mutual funds can make overseas investments subject to a maximum of US$1 billion per mutual fund, within the overall industry limit of US$7 billion;
  • mutual funds can make investments in overseas exchange traded funds subject to a maximum of US$300 million per mutual fund, again within the overall industry limit of US$1 billion; and

in respect of investment limits to be disclosed in the scheme documents at the time of a new fund offer as specified in the relevant Circular and the investment limits on ongoing schemes as specified in the relevant Circular, such limits will henceforth be soft limits for the purpose of reporting only by mutual funds on a monthly basis in the prescribed format.

Monday, May 10, 2021

SEBI introduced a new rules for mutual funds companies.

 On April 28, 2021, SEBI introduced a new rule. They mandated key employees of asset management companies i.e. mutual fund companies to invest about 20% of their salary in the schemes they run or oversee. They’ll have to tie it up for 3 years or for the duration of the scheme, whichever is shorter.

Basically, it’s a diktat forcing fund managers and other key personnel to have their skin in the game. 

Rumour has it that SEBI only acted after Franklin (an asset management company) wound down 6 different mutual funds overnight sending ripples across the entire sector. Reports allege that the fund managers, in this case, took on inordinate amounts of risks, acted recklessly, and pulled out their money when things took a turn for the worse. A few days later they wound down the funds leaving hundreds and thousands of investors in the lurch. There were no consequences for their actions. No penalties, no harm, and no damage done.

Because remember, fund houses are paid despite how their schemes perform. Most companies seek a fee (1–2% of the sum you invest), without promising much. According to one report from 2019, 82% of active large-cap funds have underperformed the S&P BSE 100 index, which includes the 100 largest Indian companies. Imagine that — You could pick a passive basket of the 100 largest Indian companies and still outperform those who are paid ludicrous amounts of money to actively manage a mutual fund scheme.

Bottom line —Most fund managers aren’t really that good at managing money and it’s probably why you’re seeing some backlash from the incumbents. 

SEBI wants mutual fund companies to have skin in the game. But other key stakeholders in the industry want the rule gone. The only question remaining —What do you think?.... 

Sunday, March 14, 2021

S. 90, 91: An Indian taxpayer is not entitled to claim refunds from the Government of India of taxes paid by the said taxpayer outside India, i.e., to the foreign Governments, in respect of the income taxes paid abroad on income earned in the respective tax jurisdictions, if the said income is not taxed in India due to a loss. However, the taxes paid abroad are allowable as a deduction in the computation of the business income of the assessee .

 Bank of India vs ACIT ( ITAT MUMBAI) 

In the present case, our entire focus was on whether these foreign tax credits could be allowed even when such tax credits lead to a situation in which taxes paid abroad could be refunded in India, but that must not be construed to mean that, as a corollary to our decision, these foreign tax credits would have been allowed, even if there is no domestic tax liability in respect of the related income in India if it was not to result in such a refund situation. At the cost of repetition, we may add that, for the detailed reasons set out earlier, we have our reservations on the applicability of the Wipro decision (supra) on this bench, being situated outside of the jurisdiction of Hon’ble Karnataka High Court, and we are of the considered view that full tax credit for source taxation cannot, as such and to that extent, be extended in the residence jurisdiction when a tax treaty sanctions only proportionate credit, and does not, in any case, specifically provide for the full foreign tax credit. A full tax credit, which goes beyond eliminating double taxation of an income, actually ends up subsidizing the foreign exchequer, to the extent that the taxes paid to the foreign exchequer are allowed to discharge exclusive domestic tax liability, rather than eliminating double taxation of an income, and that is the reason that even in the solitary full credit situation visualized in the Indian tax treaties, in the Indo Namibia tax treaty (supra), it’s one-way traffic inasmuch as while India, as a relatively developed nation, offers, under article 23(2), full credit for taxes paid in Namibia, whereas, in contrast, Namibia, as a developing nation, offers, under article 23(1), proportionate credit for taxes paid in India. It reinforces our understanding that the full foreign tax credits cannot be inferred to be permissible as a matter of course and normal practice