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What Does the Mutual Fund Industry Expect from Union Budget 2020?

Highlights

  • As the Budget 2020 nears, Mutual Fund Industry expects the govt to announce tax waiver on long term capital gains and other stimulus measures
  • Read all such expectations here!

The capital market had gone through the highs and lows in the year 2019. If the corporate tax rate cut announcement made the market jump for 5-6 consecutive trading sessions, the hike in the additional surcharge on Foreign Portfolio Investors (FPIs) made the market poorer by around ₹22,000 crore. Further, the sub 5% Gross Domestic Product (GDP) growth weighed in to the poor market sentiment. Came 2020 and came the shocking news of the US-Iran fight. This has only led to a spike in inflation and further added to the negative sentiments.

All that and more has only made the Union Budget 2020, which is to be presented by the Finance Minister Nirmala Sitharaman on 1st February, a keenly awaited affair. As a mutual fund investor, you could hear some good news from the Finance Minister. So, what’s the news that could bring a smile on your face? For that, you need to read this post further.

Long-term Capital Gain Tax Waiver

As soon as the Union Budget 2018 came with an announcement of taxing long-term capital gains on stocks and mutual funds, the capital market responded negatively for a fairly greater length of time. However, the tax is levied only when the profit exceeds 1 lakh on selling mutual fund units after a year of holding them. Given the poor investment sentiment, the market participants hope that the government waives off the capital gain tax to get the market moving up.

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Change in the Definition of Long-term Capital Gains

Long-term capital gain means the profits on selling the mutual fund units after a year of holding them. But several media reports have indicated that the government is planning to extend the period of long-term capital gain to 2 years from 1 year at present.

Dividend Distribution Tax Waiver

The Dividend Distribution Tax (DDT) is debited from the gross dividend payable to investors. Presently, the effective tax rate is 17.65%. So, the eventual dividend payout comes out less to investors. To stimulate buoyancy in the capital market, there’s a growing clamour for a waiver of the DDT.

Debt Fund Managers Expect the Government to Give More time to Telcos to Pay Their AGR Dues

Vodafone Idea couldn’t win a legal battle on Adjusted Gross Revenue (AGR) dues in the Supreme Court. This made Franklin Templeton write off debt papers worth ₹2,050 crores of this troubled telecom entity. As a result, a few of Franklin debt funds have gone negative. This is quite unusual given the high proportion of safety of the instruments where these funds invest in. Even some debt funds of Aditya Birla and Nippon India have got negative. Now, if the Government gives telecom companies more time to pay their AGR dues, it will impact your debt investments positively.