Budget 2024: With Nirmala Sitharaman set to present Budget on February 1, here's what mutual fund managers expect from finance minister

Budget 2024: With the rise of the share market in the last one year, mutual funds have been also performing well. 

The majority of equity, many sectoral and thematic mutual funds, and Equity Linked Saving Schemes (ELSS) have given annualised returns of more than 30 per cent in the last one year. 

In December 2023, domestic mutual fund net assets under management (AUMs) crossed the Rs 50 lakh crore mark for the first time ever, as per Association of Mutual Funds of India (AMFI) December 2023 data. 

The monthly SIP inflows also hit a record high of Rs 17,610 crore in the month. 

Navneet Munot, Chairman, AMFI, said early this month that the mutual fund industry was geared up for the next growth milestone of Rs 100 lakh crore AUM and 10 crore investors.

As many of the new investors are flocking to invest their money in mutual funds, and Budget 2024 is set to be presented on February 1, 2024 by Finance Minister Nirmala Sitharaman, we spoke to a number of fund managers about their expectations from finance Budget 2024.

Murthy Nagarajan, Head, Fixed Income, Tata Asset Management, said that the budget is expected to focus on investment and increasing the supply side of the economy. 

"Lower interest rates are expected to keep the bond market buoyant next year," said Nagarajan.

Jimmy Patel, MD & CEO, Quantum AMC, said that the government should make mutual fund investment more tax-efficient.

"For deeper penetration of the mutual funds, i.e. for a bigger pie of the households’ financial assets, along with investor education, I believe, the government should also consider making mutual fund investments more tax efficient. Many of the long-standing expectations of the Indian mutual fund industry haven’t been honoured by the government so far. We expect the budget to address the difference in tax treatment between equity mutual funds and Unit linked Insurance Plan (ULIP)," he said.

At present, when it comes to capital gains of ULIPs, if the annual premium is less than Rs 2.5 lakh, the returns are not taxed.

"It is important to bring both ULIP and equity mutual funds on par as regards taxation (since ULIPs are essentially investment products providing some risk cover), he said. 

Patel also said that the government should revise the definition of equity-oriented mutual fund schemes by including equity Fund of Fund (FoF) schemes.

He also suggested introducing Debt Linked Saving Scheme (DLSS) on the lines of Equity Linked Saving Scheme (ELSS). 

"Additionally, since Indian bonds would now be part of the JPMorgan Global Bond Index and Bloomberg indices from mid-2024 onward, we also suggest introducing 
Debt Linked Saving Scheme (DLSS) on the lines of Equity Linked Saving Scheme (ELSS). This would channelise the long-term savings of retail investors into high-quality debt instruments with tax benefits, helping to deepen the Indian Bond Market," said Patel.

He also proposed allowing mutual funds to channelise retirement savings with the government providing tax incentives.

Anurag Mittal, Head of Fixed Income, UTI Fund, said that fixed income Investors would largely look at the government's commitment to the fiscal consolidation.

"Since the government has committed to target 4.5 per cent fiscal deficit by FY26, the bond market will be keenly looking at consolidation from 5.9 per cent in FY24," said Mittal.

He said that fixed income investors would also look at the continuation of capex expenditure by the government.

"The government has focused on raising capex spending and market participants want the government to continue the same.

"A fiscal deficit between 5.3-5.5 per cent with a net market borrowing of Rs 11.5-11.8 lakh crore could be taken positively by the bond market," said Mittal.

Marzban Irani, Debt CIO, LIC Mutual Fund, said he doesn't expect any path-breaking policy announcements in the interim budget, but he feels there is always scope for unconventional moves by the government.

"In my view, the Centre should try to adhere to the fiscal deficit target as it gives a clear signal to global investors. The G-Sec is getting listed on global indices now. The government might announce popular measures before General Elections. Although the supply looks similar to last year’s, the demand is also strong," said Irani.