InvestorQ : Can you share some equity market and mutual fund expectations from Budget 2021?
Crowny Pinto made post

Can you share some equity market and mutual fund expectations from Budget 2021?

2 years ago

Let us first look at some of the major expectations of equity investors from the Union Budget 2021.

· The first thing that equity markets and investors want from the Budget is to continue the reforms process.

· Markets also want the budget to focus on spending in a big way on infrastructure so that it leads to all round growth across the economy and reduces costs.

· One way to boost equity markets is to give tax breaks for individuals and corporates and also boost the rural and urban demand.

· The budget needs to put more money in the hands of the Indian investor. That can be through helicopter money, tax breaks, exemptions or trickle-down effects.

· Budget must ensure that the money reaches people and supports a revival in equity investing rather than limiting to macro level announcements.

· Time is ripe to scrap tax on long term capital gains of flat 10% above Rs.1 lakh per year to give relief to long term investors.

· Alternatively, the LTCG tax definition of long term can be shifted from 1 year to 2 years if scrapping is not possible due to revenue considerations.

· Investors also want dividends tax to be scrapped, both on equities and equity funds with preference to the latter.

· Section 80C for ELSS funds is too generic and the budget can explore a dedicated exemption section for equity and equity funds to spread the equity cult.

· Budget can bring back Section 54EC offering exemption on capital gains tax if the proceeds were invested in infrastructure equities.

· It is time to get rid of the STT as it poses a big risk to the growth of market liquidity and tends to export volumes in equities abroad.

Let us now turn to major expectations of mutual fund AMCs and investors from the Union Budget 2021.

· It is time to put MFs at par with ULIPs in multiple ways. For example, equity funds are classified as equity for tax purposes but ULIPs are exempt from 10% flat LTCG tax

· This gives an unnecessary edge to the ULIP schemes over the tradition ELSS schemes in terms of post tax returns. It is time to restore parity in tax treatment.

· In ULIPs, investors are allowed to transfer from one scheme to another scheme without any tax liability. Inter-scheme transfers in MFs attract tax and STT, which needs change.

· This inter-scheme can help smooth financial planning and portfolio review as portfolio tweaks can be done without steep additional charges.

· There is a demand from investors to make Section 80C benefits for debt funds also, just like ELSS. The regular 3 year lock-in can be applied in this case also.

· This will give tax benefits to conservative investors also, who don’t want to take the risk of equities due to existing exposure or due to age and risk appetite.

· Dividend on equity funds is now taxed as other income in the hands of investors. Since it is just a distribution of corpus, it leads to double taxation.

· It is best to scrap LTCG tax on capital gains on equity funds as the 10% tax is forcing unnecessary profit booking by long term investors, just to save tax.

· Then there is the issue of STT that is charged on equity funds when they redeemed. This is unfair as ULIPs are not subject to STT and budget should scrap it.

· Also, there is the demand to reintroduced Section 54EC funds that existed up to 2002, when it was fully scrapped.