The Hindu Business Line : Cut in I-T may help mutual funds

Mumbai, June 6 Though the Budget did not contain anything that directly pertains to mutual funds, the increase in disposable income in the hands of investors is likely to pave the way for increased investments in mutual funds in the long term, said fund managers.

The thrust towards infrastructure is also likely to benefit certain theme-based funds, they said.

Infrastructure and domestic consumption have been two major themes in this Budget and this would be a huge positive for infrastructure funds and selected equity diversified schemes, said Mr Krishnamurthy Vijayan, Executive Chairman, JPMorgan Asset Management India.

Removal of surcharge on personal income-tax and the modest increase in zero tax slabs should help consumer-driven sectors such as FMCG, pharma, consumer durables; while banking and financials may come under pressure in the short term, said Mr Arindam Ghosh, CEO of Mirae Asset AMC.

The cut in surcharge will increase the disposable incomes of people earning Rs 10 lakh and more, and this is likely to increase their investment allocations, said Mr Waqar Naqvi, CEO of Taurus Mutual Fund.

This money could make its way to investment avenues such as mutual funds, banking and insurance products, said Mr Jaideep Bhattacharya, Chief Marketing Officer, UTI Mutual Fund.

Also, with the increased spending on NREGA and infrastructure projects, the disposable income at rural households might rise and find its way into the financial and banking sectors, he said. The decision to have one banking centre in every administrative block will increase the penetration of financial products, including mutual funds, in rural areas, said Mr Bhattacharya.

Some market-watchers said it was too early to predict the investment behaviour of people even though they might end up with larger disposable incomes.

“Not much money is expected to flow into mutual funds or even equities directly; in fact, it will largely be either into bank deposits or into purchase of white goods such as TVs or washing machines,” said a fund manager.

In tough times, people need cash in their hands to decide on the area they want to spend on and the Finance Minister has reduced tax surcharge and put money in their hands, said Mr Saurabh Nanavati, Chief Executive Officer, Religare Mutual Fund.

The group, which is likely to benefit from increased infrastructure spending and increased disposable incomes through the hike in the income-tax slabs, is more likely to spend rather than invest, noted another fund manager.

Another source of long-term investment, the New Pension System (NPS), is also in Government focus.

The Government is trying to channelise long-term savings by promoting NPS by abolishing STT and dividend distribution tax on equity investments through this scheme, said Mr Sameer Narayan, Head of Equity, Fortis Mutual Fund.

This might result in more people joining the NPS, said Mr Bhattacharya.

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