Budget 2025 Expectations: AMFI Urges For Debt-Linked Savings Scheme To Propel Indian Bond Market

As Finance Minister Nirmala Sitharaman prepares to unveil the Union Budget 2025 on February 1, stakeholders from various sectors are voicing their expectations.

Among them, the Association of Mutual Funds in India (AMFI) has outlined its key proposals to stimulate the mutual fund sector and deepen investor participation.

AMFI's top priority is the introduction of a Debt-Linked Savings Scheme (DLSS), which it believes can channel long-term savings into high-quality debt instruments and reduce reliance on banks for corporate finance.

A Call for Debt Market Reforms
The Indian bond market remains underdeveloped, and AMFI sees DLSS as a pivotal initiative to address this gap. Drawing parallels with the successful Equity-Linked Savings Scheme (ELSS), AMFI proposes tax benefits for DLSS investments to attract retail investors.

"At least 80% of funds collected under DLSS should be invested in highly rated debt instruments, with the remaining deployed in liquid assets as per SEBI regulations," AMFI suggests in its submission. The scheme, they argue, should offer tax deductions under a separate section with a five-year lock-in period, similar to tax-saving fixed deposits.

Why DLSS is Essential
The over-reliance on banks for corporate financing has often resulted in inefficiencies, such as the accumulation of non-performing assets and limited access to credit for small enterprises. A thriving bond market, AMFI contends, can democratize access to capital, lower borrowing costs, and enhance financial stability.

A vibrant corporate bond market is also important from an external vulnerability point of view, as a dependence on local currency and markets will lower risks,” AMFI's proposal states. By encouraging large corporations to tap into the bond market, DLSS can play a transformative role.

Investor-Friendly Tax Reforms on the Table
AMFI's expectations for Budget 2025 extend beyond DLSS. The association is advocating for the restoration of indexation benefits for debt funds, which were withdrawn in the previous budget. This move, AMFI argues, has deterred retail investors and hampered the growth of debt-oriented mutual funds.

“We anticipate a Union Budget that prioritizes investor confidence and deepens participation in mutual funds by addressing key tax-related concerns. Restoring indexation benefits for debt funds and rationalizing the capital gains tax regime, as well as the introduction of a Debt-Linked Savings Scheme, can significantly bolster long-term savings and develop the Indian bond market,” says Venkat Chalasani, Chief Executive of AMFI.

He added, “Harmonizing tax treatments for pension-linked mutual funds and other investment avenues will also create a level playing field, driving financial inclusion. Additionally, simplifying TDS rules for NRIs and revising GST provisions related to mutual fund operations would alleviate compliance burdens and support robust growth. We look forward to a progressive budget that reinforces mutual funds as a pillar of economic development and investor wealth creation."

AMFI is also pushing for uniform tax treatment for pension-linked mutual funds, simplification of TDS rules for NRIs, and revisions to GST provisions impacting mutual fund operations. These changes, they believe, can alleviate compliance burdens and create a level playing field for investors.

The Road Ahead
The mutual fund industry, with over 5 crore investors, has been instrumental in channeling household savings into productive assets. However, tax inconsistencies and limited investor incentives in debt instruments have posed challenges. AMFI's proposals, if implemented, could bridge these gaps and position mutual funds as a pillar of economic development.

With India aiming for a $5 trillion economy, a robust bond market is indispensable. DLSS, coupled with tax reforms, could be the catalyst that aligns retail investments with the country's growth trajectory. As Budget 2025 approaches, the industry and investors alike await a progressive announcement from the government.