From tax incentives to the introduction of debt-linked savings schemes, here are the main pre-Budget expectations from the mutual fund industry
With Union Budget 2024 about to be unveiled in two weeks, the expectations from the mutual fund industry is high, ranging from tax incentives to the introduction of debt-linked savings schemes. Fund managers, however, do not expect a change in the broad-based policy direction due to the continuation of the government.
Last year, the indexation benefit in debt mutual funds was taken away, and gains will now be taxed at par with fixed deposit returns at slab rates.
One lasting demand from the Association of Mutual Funds in India (Amfi) has been to eliminate capital gains tax if the switch is between a regular plan and direct plan, or a growth and dividend plan of the same mutual fund. Another call is for a uniform tax rate for capital gains, and simplification of the tax regime with reduced tax slabs and tax categories. Another request is to introduce debt-linked savings scheme (DLSS) to help deepen the Indian bond market on the lines of equity-linked savings scheme (ELSS).
To encourage retail investors to move away from physical gold and invest in yellow metal through the mutual fund route, Amfi had last year called for gold exchange traded funds (ETFs) and fund-of-funds (FoFs) – which invest 90 per cent or more in units of gold ETFs – to be subject only to long-term capital gains (LTCGs) tax of 10 per cent.
Says Chandraprakash Padiyar, senior fund manager, Tata Asset Management: “The crucial factors for the mutual fund industry in the upcoming Budget would be the fiscal deficit target for FY25 and its trajectory for FY26. The finance minister had in the interim Budget reiterated the government’s intention to adhere to fiscal discipline with target to achieve a deficit of 5.1 per cent for FY25 and reach under 4.5 per cent for FY26. India has recently opened its doors to foreign investors to invest in the fixed income (select Government securities (G-secs)) market, and it would be important to deliver on promised pathways for annual borrowings.”
He adds: “Fiscal discipline has important implications on the domestic liquidity environment, currency movement, inflation, interest rates, and indirectly, the equity market outlook. We would look forward to a positive balance between capital investment and welfare schemes for the poor section of the country.”
Says Mahendra Kumar Jajoo, chief investment officer – fixed income, Mirae Asset Investment Managers (India): “The continuation of same government is a reasonable sign that broad direction of the policy framework will continue as well, for instance, a path towards fiscal consolidation, infrastructure push, and social upliftment, among others. There are expectations of some reduction in market borrowings following a bumper dividend payout by the RBI.”
He adds: “There is also some buzz around special status or assistance for states such as Andhra Pradesh and Bihar. There are calls for reduced tax benefits to the mid-range earning bracket. Markets are also hoping that the capital gains tax benefit available on equities is not curtailed. On the growth front, in addition to capital expenditure, there is a possibility of pushing agriculture and manufacturing further to cater to the last mile. Market participants are keen on how consumption will get a boost, along with the support given to agriculture and tweaks in the personal taxation regime.”
Says Saurav Basu, head of wealth management, Tata Capital: “Budget 2024 holds significant promise for the mutual fund industry, with expectations centred on taxation reforms and enhanced incentives for retail investors. We anticipate a rationalisation of the tax treatment of capital gains between equity and non-equity mutual funds, as well as a reassessment of the indexation benefit previously available for debt mutual funds. The removal of this benefit has led to significant outflows over the past year. Additionally, we expect increased tax deductions under Section 80C for mutual fund investments, which would encourage investors to allocate more funds to tax-saving mutual fund.”