Will India’s mutual fund investors get a capital gains break?
Currently, redemptions on funds held for more than 1-year get 10% hit
Stock market investors in India, especially those who go through mutual funds, will be hoping for a favourable break from Finance Minister Nirmala Sitharaman as she delivers the federal budget 202324 on February 1.
In specific terms, mutual fund investors hope the FM will extend the period to 2- or 3-year for which any redemptions made by them invites a 10 per cent capital gains tax. (The original capital gains ruling on exits over a 1-year period was brought in during the 2018-19 budget.)
“The current cut-off for an investment being defined ‘longterm’ is one year,” said Praveen Jagwani, CEO of UTI International, India’s mutual fund behemoth. “We believe to incentivise investor behaviour to buy and hold for the long term, the period should ideally be closer to three years, which is similar to (what’s there in India on capital gains for) real estate.
“Because that would allow investors, retail and institutional, to take a long-term view of the market, rather than just trading in and out. For taxation, we are okay with 10 per cent for the long term and 15 per cent for the short. However, the (capital gains) period would be better if it was increased to 3 years.”
Will the budget offer sops?
Attention will thus be on FM Nirmala come February 1 to incentive equity investors to hold on for longer. At least to about 3 years.
India’s stock markets and mutual funds have had a fairly good 2022, with investors seizing on opportunities that talked up the country’s prospects to put in some strong GDP growth. Another boost for stocks was with inflation pressures starting to come down from upwards of 7 per cent.
Data suggests that retail investors brought in around $35 billion into Indian stocks through this period, more than compensating for the $17 billion outflow from foreign investors.
“One of the reasons why Indian stock markets have held up so well in 2022 despite the outflow of foreign investors is because of the significant and consistent inflow from retail investors,” said Jagwani.
“And the biggest portion of the retail inflow has been through the systematic investment plan (SIPs), where everyone who has a salaried account with the bank, on a regular monthly basis, invested some amount in pre-selected few mutual funds.
“This has been a big positive for the mutual fund industry in India, when SIPs became the dominant way of investing. Institutional investors in India have kept pace, for example, the EPFO, which is the employee provident fund of India may have come in. Not so much through mutual funds, but through ETFs.
“Exchange traded funds or passive investment vehicles have also contributed to the rise of AUM (assets under management), because MF companies run both mutual funds as well as ETFs.”
60th year with a presence
The UTI Group manages $177 billion across Indian equities and fixed-income portfolios. The entity, which is marking 60 years since its first exposure to Dubai, is also one of India’s oldest asset management companies.
In its pitch to UAE-based Indian expats, UTI says they could leverage its ‘strategy of USD 3X growth, which has been a continuing success for the last 10 years in the Indian growth story’.
The overseas subsidiary of the group, UTI International — which has offices in Dubai, Singapore, Paris and London has $2.9 billion as assets under management.