Finance Minister Nirmala Sitharaman’s debut Budget has a few announcements that would have a significant positive impact on mutual fund industry. Here is a snapshot:
Tax advantage for CPSE ETFs
Disinvestment from select Central Public Sector Enterprises (CPSE) is a priority for this government. Government is seeking more retail participation in ETFs and CPSE ETF has been so far a successful route for the government’s disinvestment. But the government wants to do more.
According to the Budget 2019 announcement, the Equity Linked Savings Schemes (ELSS) benefits will be extended to investment in CPSE ETFs too. This should encourage long term investments in CPSEs and also provide a tax efficient alternate investment option to retail investor. ELSS schemes receives a significant chunk of tax payers 80c investments. This additional avenue will provide a further boost to mutual fund inflows.
Easy KYC, More Investors
The government has proposed that PAN Card and Aadhar card be made interchangeable documents. Which means investors seeking to invest in mutual funds will have to only present either of the two documents. Which will ease the KYC process and aid in increasing retail participation in mutual funds space. Also considering the deep penetration of Aadhar cards (120 crore Indian possess Aadhar card) this seems to be a favourable development.
NRI investments merging with foreign portfolio
Government has proposed to merge the NRI investments that used to come directly to Indian equity markets with foreign portfolio route that can invest only through fee based pooling vehicles such as Mutual Fund, AIFs etc. This will in turn help mutual funds in gathering more assets as all the money that was going directly to stocks will come to them.
Foreign investments in infrastructure
In order to boost foreign investments in Indian infrastructure space government has proposed to permit Foreign Portfolio Investors to subscribe to listed debt securities issued by ReITs and InvITs. Higher foreign investments have always benefitted the bond market activities in India. Similarly, higher foreign investments in this sector is likely to improve liquidity and debt issuance.
Pro Development Announcements
Government has indicated the focus on higher expenditure and steps to improve domestic and foreign private investment. High investment in segments like Rural India, Infrastructure, Digital along with recapitalisation announced for PSUs will improve the business activity in sectors like IT, Banks, Real Estate, Building Materials etc.
Better corporate growth results in more job creation and higher per capita income in India. Which will contribute to the growth of Indian equity markets and in turn mutual fund industry. Having said that, these reforms will only materialise in business growth if the private investment actually picks up.
While the overall budget didn’t stir up public interest, the reforms announced if implemented as planned have potential to benefit mutual fund investors and asset management companies alike.