For small investors, mutual funds are safer and more convenient than investing directly in the markets. The Union Budget contains some measures that will do severe damage to mutual fund investors.
The budget has also imposed a tax on securities trading, which may discourage debt trading.
The government has drastically reduced the tax on short-term capital gains. It has also completely eliminated tax on gains made from long-term investments.
However, the government has not extended this new tax regime to investments in equity mutual funds. In effect, equity fund investments are taxed at a higher rate compared to investment in stock markets. Mutual fund investors will also be exposed to double taxation.
It appears that all securities trading will be taxed at 0.15 per cent. Though this is a regressive and discriminatory step, the gains are many times higher than the tax. However, in the case of debt, this tax will often be actually higher than the gains.
The only safe debt investments are short-term ones. Such investments are held for 10-15 days and earn at a mean rate of 4-5 per cent. This means that in one transaction, they earn around 0.15 per cent.
{{/usCountry}}The only safe debt investments are short-term ones. Such investments are held for 10-15 days and earn at a mean rate of 4-5 per cent. This means that in one transaction, they earn around 0.15 per cent.
{{/usCountry}}As things stand, the best hope of the millions of Indians who have come to see mutual funds as the preferred way of growing their savings is that these measures are mistakes that will soon be rectified. The government should rectify these mistakes for the sake of the health of the country’s financial markets.
The writer is a mutual fund consultant