Budget 2022: FM Nirmala Sitharaman likely to give tax breaks on switching mutual fund scheme

We spoke to Akshat Garg, Manager Research at Investica – an online platform for investing in mutual funds, to decode what the MF industry expects from Budget 2022.

Finance Minister Nirmala Sitharaman is going to present the budget on February 1. Pic: Reuters

The past 10 days have not been less than a hangover for the retail investors, especially for those millennials, who jumped into the stock markets in the last couple of years, spotting too much volatility in such a short span might neutralize their expectations.

Union Budget 2022, which is going to be presented by our respected finance minister Nirmala Sitharaman on 1st Feb, is also a major contributor to this high volatility, historically also similar behaviour was observed in the Pre-budget trading days.

Since BJP came in central, they have leveraged their focus to push the domestic manufacturing sector by their popular campaigns like “Make in India”, “Aatmanirbhar-Bharat” to build a self-reliant economy that is marching aggressively towards the magic figure of “$5 Trillion”.

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We spoke to Akshat Garg, Manager Research at Investica – an online platform for investing in mutual funds, to decode what the MF industry expects from Budget 2022:

There are high chances that this budget finance ministry, might bring more perks for domestic manufacturers in the form of cheap credit and tax breaks which may tempt many Asset Management Companies to launch “Manufacturing” thematic/sector funds to ride the growth wave.

In India, nearly ~ 2% of people invest in stock markets, which is very low if we compare it with the developed markets like America where the number is more than whooping 50% and second in the race is the United Kingdom where 1/3 rd. of the population invests in the stock markets.

India is nowhere close to these gigantic figures, and I strongly believe that the government might allocate some budget for the development of financial literacy among teenagers, millennials, and adults to get their feet in the financial markets.

More than 95% population is yet to be on board and Mutual Fund Industry will receive tons of cash flow because mutual fund as an asset class is simple to understand and be of great help to new investors who want to start their investment journey with a low-risk profile.

The Finance Ministry probably would also look forward to bringing equivalency in the tax rates in correspondence with the LTCG for Debt Instrument, as the definition of “long term” is inconsistent for debt mutual funds (36 Months) and listed bonds, debentures, and government securities (12 Months).

To cut the tax bill, investors can invest in Equity-linked saving schemes, popularly known as ELSS funds, as it is a legit route to save taxes on an income up to 1,50,000 under Income tax section 80C.

But, it might not be in favour of those conservative investors who are not looking for equity exposure but still need to save tax.

The government may introduce the “Debt linked saving scheme” to cover those investors, additionally, it will also bring more liquidity in the debt schemes.

Ministry can also be looking to give a tax break on switching the mutual fund scheme, which happens when investors switch from a dividend plan to a growth scheme or vice versa.

It is treated as capital transfer and subjected to capital gains tax. We can also expect a tax relief on the switch between two mutual fund schemes of the same asset management company.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)

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Budget 2022 FM Nirmala Sitharaman