Budget 2024: Mutual fund industry players expect these reforms from FM Nirmala Sitharaman

Mutual fund industry has been on a roll for quite some time. Mutual fund inflows have been on a rise with SIPs growing month after month. The latest data released by the mutual fund body (i.e., AMFI) is upbeat, to say the least. 

Sample this: The mutual fund industry achieved a significant milestone of ₹50 lakh crore assets under management (AUM) in the month of December 2023.

Mutual Fund folios reached an all-time high of 16,48,90,272 in December 2023 while the SIP (systematic investment plan) contribution touched ₹17,610.16 crore.

“While the MF industry took almost 50 years to build the first ₹10 lakh crores of AUM, the last ₹10 lakh crores, from ₹40 lakh crores to ₹50 lakh crores was amassed in just over a year," said Venkat Chalasani, Chief Executive of AMFI said at the time of released of data. 

Now the industry players expect the following reforms so that the current momentum continues for the mutual fund industry. 

1 Tax disparity: Remove the tax disparity between ULIPs and mutual funds so that the latter, too, become tax efficient.

2 Capital gains tax: Switch between different schemes is exempted from capital gains tax.

“The Intra-scheme switches, i.e. switching of investment within the same scheme of a mutual fund. Switches should be exempt from payment of capital gains tax as no gains are realised in such a case. Therefore, we suggest that amendments must be made so that switching of units from (a) regular plan to direct plan or vice-versa; and (b) growth option to IDCW option or vice-versa, are not regarded as transfer,” says George Thomas, Fund Manager (Equity), Quantum AMC.

3. Focus on growth: Government’s thrust should be on growth and inclusion. Also, steps should be taken to unlock savings made in gold which will help provide internal resources for funding and reducing reliance on global capital. 

“The Vote on Account should focus on growth and inclusion. Growth should be boosted through investments led by Road, Railway, Water, Renewable energy, digital education and healthcare. The same should be funded through asset monetization and divestment so that the path of fiscal prudence can be achieved. Steps should be taken to unlock savings invested in gold to provide internal resources for funding Growth and reducing reliance on global capital,” says Nilesh Shah, MD - Kotak Mahindra AMC.

4. For retirement planning: Lastly, mutual funds can be used to accumulate retirement savings and are given tax benefits on the lines of National Pension System (NPS). For this, Mutual Fund Linked Retirement Scheme (MFLRS) can be rolled out. 

“We also propose allowing mutual funds to channelise retirement savings with the government providing tax incentives. A MFLRS with the same tax concessions available to the NPS be permitted. A majority of NPS subscribers are from the government and organised sector. The MFLRS could target individuals who are not subscribers to NPS,” adds Mr Thomas from Quantum Mutual Fund. 

Other expectations

The mutual fund industry players also expect the forthcoming Budget 2024 to give emphasis on investment, fiscal consolidation and rolling out more tax exemptions. Let us hear some more voices from the mutual fund industry.

“This budget is expected to focus on investment and increasing the supply side of the economy. Given the initial forecast of normal monsoon, CPI inflation for next year should be below RBI projection of 4.5 percent. This should lead RBI to change its stance to accommodating from withdrawal of liquidity and rate cuts of at least 50 basis points. Lower interest rates are expected to keep the bond market buoyant next year,” says Murthy Nagarajan, Head-Fixed Income, Tata Asset Management.

Deepak Agarwal CIO - Debt, Kotak Mutual Fund says, “We expect the Government to work towards its glide path of fiscal consolidation and accordingly, fiscal deficit to GDP for FY25 is likely to be in the band of 5.3%~5.5%. Spending on capex is likely to be the focus area for the Government like last year. The borrowing requirements will likely be met with flows from the J.P. Morgan Emerging Market Bond Index to start from Jun’24.”

“Government should also consider making mutual fund investments more tax efficient. Many of the long-standing expectations of the Indian mutual fund industry haven’t been honoured by the government so far.  We expect the budget to address the difference in tax treatment between equity mutual funds and Unit linked Insurance Plan (ULIP). At present, when it comes to capital gains of ULIPs, if the annual premium is less than ₹2.5 lakh, the returns are not taxed,” adds George Thomas, Fund Manager (Equity), Quantum AMC.

"We, at Tata AMC, would be looking for higher capital investment in the budget while managing fiscal deficit as per the glide path announced earlier towards 4.5 percent by fiscal 2026," says Chandraprakash Padiyar, Senior Fund Manager, Tata Mutual Fund.

Satish Ramanathan, CIO Equities, JM Financial Asset Management, says, "One area where we may expect some positive relief is on personal income tax. There may be some rationalisation of tax slabs and rates."