Great Budget expectations

"I will pray for status quo, since investors need time to settle down and understand mutual funds," writes Vijayan Krishnamurthy.

This year the finance minister has once again promised a dream Budget. This will indeed be a tough job, since there is so little that he can do to deliver on this promise. Yet, I have immense faith that he will still spring some surprises.

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Were I to really DREAM BIG, I would say that I hope he will address the concerns of Provident Fund investors and unions by stating that PFs should invest only in 'market neutral' funds and index funds. Market neutral or (in simple terms) 'arbitrage funds' are gaining favour internationally with pension investors while index funds have been their staple for ages.

The finance minister, I'm sure, will appreciate the merits of minimizing the exposure to market risk, while at the same time subserving the purpose of bringing long term money into the equity market. As it stands, the enabling provision on investing in equity could be a cause for concern. My second requirement for a dream Budget would be the introduction of 'Defined Contribution Plans' as an alternative for PF investors in the age-group of 21-45.

But I often temper my dreams with reality. Therefore, by and large I will pray for status quo, since investors need time to settle down and understand mutual funds without being confused by complicated tax laws. However, two minor aberrations need to be corrected.

Firstly, Section 94 (7) and its complicated lock-in stipulations to check dividend stripping, can be replaced with a simple clause requiring that the net tax free dividends received by an investor be added back to the redemption price to determine the actual difference between entry and exit prices

(capital gain or loss). Secondly, the dual Securities Transaction Tax (STT) on mutual funds is an eye-sore and its negative appeal is disproportionate to its revenue earning potential.

(Vijayan Krishnamurthy is CEO, JM Mutual Fund)