VR Logo

Fund Industry's Take on Budget 2014

Fund managers feel that Arun Jaitley's Budget has laid out clear road map for economic revival by focusing on infrastructure

The Union Budget which was announced by Finance Minster, Mr Arun Jaitley on Thursday received a neutral response from the mutual fund participants. However the major benefits will be reaped by 'common man' as FM raised 80C and Public Provident Fund (PPF) limits.

A Balasubramanian, CEO of Birla Sun Life Mutual Fund says, “I think it's a very good budget and FM has done a good balancing act. The announcement of hiking PPF amount and raising limits of 80C are good measures to channelize savings into the long terms investment opportunities.” In his Budget speech, FM announced hiking annual ceiling to ₹1.5 lakh per annum from ₹1 lakh per annum.

In his Budget speech FM said, “In the year 2012-13 the gross domestic savings were 30.1% of the GDP as compared to 33.7% in the year 2009-10. Increase in savings and their productive use leads to higher economic growth. The households are the main contributors to savings and to encourage domestic investment in long term saving, I propose to increase the investment limit under section 80C of the Income-tax Act from ₹1 lakh to ₹1.5 lakh.”

Apart from that, fund managers also feel that, Budget has laid out clear road map for economic revival by focusing more on infrastructure. “I also think lot of focus has been given to small and medium enterprises (SMEs) and manufacturing sector and this is the move in the right direction,” added Balasubramanian.

Though announcement of increasing the rate of tax on long term capital gains from 10 percent to 20 percent on transfer of units other than equity oriented funds came as a surprise, but industry players believe that this move could allow more stable long term money.

Sandesh Kirkire, CEO at Kotak Mutual Fund said, “The increase in the long term capital gains tax (LTCG) rate from 10 to 20% and the tenure from 1 to 3 years (for the debt mutual funds) leads to the closure of tax arbitrage. This directs the energies of the mutual fund industry from short to long term; and towards more stable investible inflows. The arbitrage available while calculating the dividend distribution tax has also been removed. Overall, I believe the finance minister is trying to prepare the investor for a long-term and more objective approach towards the mutual funds: which is more investments and less tax arbitrage.”

However for some this Budget was purely extension of policies started by last regime with some small modifications. But they also believe that, with this government we can expect some time bound decisions which was absent with last government.

Puneet Chaddha, CEO, HSBC Global Asset Management, India, said "This is a budget that focuses on Speed, Scale and Skill. Speed - the push is for quick and time bound decisions, Scale - there is a lot of emphasis on improvement and more importantly expansion of infrastructure across a wider geography and Skill - the effort is to improve the capability of individuals at the rural/small scale level to make them self sustained."