This is a reality Budget

The mutual fund industry, I believe, could not have asked for more from the Budget, says JM Mutual Fund CEO Vijayan Krishnamurthy.

The mutual fund industry, I believe, could not have asked for more from the Budget. At the macro level, status quo on the fiscal deficit and the small savings rate, an additional $0.75 billion of liquidity in the debt market from the new limit for FIIs, a promise of a benign interest rate regime should reduce the apprehensions of the debt fund investor.

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The debt market may of course not take too kindly to the turnover tax, since the volumes are huge but typical margins are very low.

The strong development agenda and the emphasis on government spending on infrastructure will also signal continuity and we also have hopes that greater discipline and focus in spending will ensure that these act as fuels for economic growth. The impetus to the equity market would not be immediate, but I believe that there were such high expectations of the budget being a watershed that a little feeling of let down was natural.

The mutual fund industry is a silent beneficiary of this Budget. Let’s take a look at the benefits:

1. The turnover tax will make direct investment less attractive than through mutual funds, since Section 10 (23) D of the Income tax Act will exempt us from the tax

2. The reduced short term capital gains tax will also benefit investors who can now enter and exit based on their investment horizon, and for us the administrative costs of running a whole host of dividend options would be reduced

3. The defined contribution schemes are the developed market way of tackling the cost of retirement benefits. With the introduction of this method of encouraging retirement savings, it is only a matter of time before long-term stable funds enter the capital markets through mutual funds, adding stability and balance to our funds.

4. Above all, the strong growth agenda and clear path towards greater fiscal discipline and continued tax reforms will add an impetus to the equity markets by attracting long term investors, while the turnover tax will discourage the arbitrage based and non-delivery based volumes which has made the Indian capital markets a haven for momentum players in the past, while driving away the retail investors.

This in turn will be the impetus that the mutual fund industry is looking for in ensuring that we become the preferred channel for retail savings entering the capital market.

Thus as a participant in this industry, I would certainly rate this budget as a reality Budget – something that has so much more value than a dream Budget.

(Vijayan Krishnamurthy is CEO, JM Mutual Fund)