Apprehending a sharp decline in business, mutual funds including UTI AMC have asked Finance Minister P Chidambaram to exempt all debt instruments from the proposed 0.15 per cent transaction tax.

The Association of Mutual Funds in India has submitted a memorandum to Chidambaram requesting him to exempt bonds and government securities from the proposed tax while extending long term capital gains tax exemption to MF units as it is proposed for equities, its chairman A P Kurian said on Wednesday.

The finance minister has assured that he has an "open mind" and would consider the suggestions of mutual funds and other market participants, Kurian said.

"The kind of growth we are expecting, cannot happen with these type of taxes (transaction tax and capital gains tax)," UTI chief investment officer A K Sridhar said on the sidelines of an Assocham post-Budget seminar in New Delhi.

The mutual funds industry is growing by about 30 per cent and has assets under management worth over Rs 1,40,000 crore (Rs 1,400 billion). UTI Mutual Fund alone manages assets worth Rs 20,500 crore (Rs 205 billion).

Since, 80 per cent of the assets of mutual fund industry are in debt oriented schemes, Kurian said: "The proposed transaction tax will greatly affect debt schemes as it reduces yields by over 20-25 per cent and make them unattractive."

The mutual fund industry was not averse to transaction tax on equities as the profit margin is quite high, Sridhar said, adding the tax should be on delivery-based transactions.

"Transaction tax will not affect equity schemes of mutual funds, FIIs and FIs much, but it will definitely affect debt-oriented funds," he said.