The mischief of 80-C exemption: Does FM want us to lose money?
by Koutilya Sastri on 18 Jul 2014 13 Comments

I have been writing for many years that mutual funds are not saving schemes. They are subject to market risks. This is always shown in fine print in all the brochures of such mutual fund schemes. Even in Television commercials, the risk factor is read in a fast mode so that no one can make out anything.


So, what is a mutual fund? They are organized, large scale investors in share markets and debt markets. They collect money from the public (from the individual to the corporate) and buy equity instruments or debt instruments. For this service, they charge the customers. Some funds charge input load, some funds charge only output load and some funds charge both. These fees are substantial and may range from 1 to 3 percent or even more of the money invested by the investor.


Mutual funds take advantage of market slumps and peaks. They are seasoned companies who buy when the markets crash and sell when the markets peak. This is exactly opposite to the sentimental investor who is aroused into action by the rising Sensex and who is equally devastated by a crash. Mutual funds anticipate such events and invest accordingly. 


There is a widespread opinion amongst the public, including this author, that these mutual funds are capable of triggering such crashes as and when they want. They can also create a ‘peak’ situation in the stock market by syndicated buying and artificially pushing the share index up. This creates the perfect ‘trap’ for the gullible investor, who is now lured into putting money in shares. He is unaware that he is buying at a peak and is taking an extreme risk. When the market has tapped the money of quite a good number of such ‘investors’, a crash happens which is often due to sudden selling by many Mutual funds at a time. This rakes in enormous profits for them. This ‘profit’ is then distributed to the investors. There is no openness on such transactions like whether the entire profit is distributed or only a part. They gain in service charge and share in profits too.


But, the loser is always the common man who loses great money. Another heart-breaking tailpiece information in this whole act is that it is the same Mutual funds which will buy the shares again at rock-bottom prices from heartbroken investors to plan their next kill.


This money is not savings. No scheme linked to equity is savings. This is tainted money and is a product of a speculative market. I wonder how successive governments gave tax exemptions to gains from mutual funds.


But now, the 2014 budget has done the most atrocious thing. It has added equity linked savings schemes by mutual funds to the list of exemptions for claiming under clause 80 (c), 80 CC and 80 CCC of IT Act. The others are Life insurance premia, Home loan repayment, PPF, EPF, National Saving Certificate (NSC) and any fixed deposit of five year maturity.


I ask all readers and in fact anyone concerned, to compare the performance of the National Savings Certificate, fixed deposits of a bank, and the Mutual fund. (I am not mentioning the other items because they are exemptions on other grounds and other criterion and are not marketed under ‘saving’). The humble fixed deposit and NSC have been outperforming the mutual fund schemes in a steady manner. The much touted flagship fund of LIC, the money plus (1996), which saw tremendous subscription, has not even given 80 percent dividend in 8 1/2 years, but the NSC and  FD had already yielded 100% in the same period (all small saving certificates double in eight years and seven months).


The power of small saving can be demonstrated by a small calculation. A person who saves regularly Rs 500 per month in NSC from age 18 to 50 years (total 32 years) will in total invest only Rs 1,92,000/-.  But the returns will be get Rs 80,000/- (eighty thousand) every year from his 49th year till his 81st year. The total amount is a whopping Rs 24 lakhs.

Or if he can wait till his 55th year, he will get Rs 1,60,000/- (one lakh sixty thousand ) per year till he is 87 years. Returns total Rs 51 lakh.

Or he can choose to get Rs 3,20,000/- (three lakh twenty thousand) every year from his 62nd year to 94 years , Returns then will be Rs One crore.


Investing in NSC is no rocket science. One does not even need a bank account; just go to the nearest post office (


One wonders who advised our Finance Minister about these mutual funds. They are NOT saving schemes at all. How can a speculative instrument be a genuine saving scheme? I appeal to all concerned decision makers, the finance minister and the Prime Minister to reconsider this decision and strike out these sinister funds from getting public acceptance.


Small Savings are for nation building.  Mutual funds are that part of money that can be withdrawn from the country to unknown destinations and have no accountability within India.


To the adventurous and the super rich I offer no advice. They can afford to invest, get bruised, beaten and heartbroken. But my concern is the modest, sober and hardworking class which needs to safeguard its money.

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