Amended treaty does not really impact overall flows but does impact volumes in the market: Sandip Dhingra, Ashiana Capital

In a chat with ET Now, Sandip Dhingra, Founder & CIO with Ashiana Capital, says a mutual fund based in India and another based elsewhere in the world should have similar tax treatment. Edited excerpts



ET Now: How will life change for you, the Mauritius treaty has been amended and we have been told that soon Singapore treaty will also be amended?

Sandip Dhingra: As you pointed out, this was in the works and something on this was expected fairly soon. So on the one side, it is good that it has come through and the uncertainty has ended. There is a clear path as we go forward. From a market perspective, there are a couple of things which we need to think about. One is round tripping or sending money through Mauritius, misuse of that route, has long been an issue. At the same time, one thing worth pondering about is probably we should also seek to have a level playing field for similar institutions which invest domestically as well as foreign institutions. For example, if it is a mutual fund based in India or a mutual fund based elsewhere in the world, they should have similar tax treatment. So that is an area where I would suggest that more thought should be given to making it a level playing field for different kind of investors.

ET Now: Do you think inflows of any kind would be an exaggerated fear at this point in time?

Sandip Dhingra: Look, there is still time, right. This comes into play early next year and people still have time to work through their strategies and how they are going to position their portfolios. So I think we might see a little bit of a reaction short term but the flow picture is not going to change anytime soon. Probably as we go into next year then we will see how the flow picture emerges. One of the issues really would be that does it impact overall market trading liquidity and that just makes it more difficult for people to buy and sell stock. If there is a part of the flows which was more short term in nature, trading flows which could have slow down given these changes.

ET Now: What a couple of guests were fearing is that while it may not have an impact on FII flows and therefore the market may not get impacted too much but people really need to love India if they want to invest in unlisted stocks or properties. Therefore, that kind of flows might just get a bit hit because if you are investing in the US you are not taxed and in certain other western countries you are not taxed, but India you might get taxed. Now is that a legitimate argument at all because if you are investing in property as well, you are not investing with a view of less than one year?

Sandip Dhingra: You know different countries have different tax jurisdictions like in property you mentioned. There is tax in the US, for example, if you invest in US property. There is tax in most of the European countries. I think the fundamental question really is the same kind of treatment for similar kind of investors. For example, if there is a mutual fund X which has a India fund and also has a offshore fund, now should we be treating the offshore fund differently from the India fund? That is really the fundamental question. It meets all the criteria that Sebi requires broad based fund and maybe it can get registered with Sebi if they want that as a clause. So I think that is a little point which needs to be re-thought through this whole thing. Personally, it does not change too much of what we do but I would think impact on market volumes is something which we have to think about as we get into next year because there is some amount of arbitrage flows or there are prop desks which do short-term trading. So if that volume disappears, it does not really impact overall flows into India but it does impact the volumes in the market, which impacts investors ability to participate in the market.