The Hindu Business Line : Funds expect Budget booster to spur retail interest

THE Union Budget is near enough and mutual funds have started dishing out their wish lists. Their agenda are largely driven by the hope of catering to wider sections of the market.

A quick look at what various fund houses have been saying indicates a desire to grab a greater share of the pie, partly courtesy more retail participation.

It will be indeed important for fund houses to tap the retail segments in a more effective manner, particularly with the help of equity schemes. Their retail business, as one keeps on hearing, can only grow in terms of stature, especially so if the equity market continues to do well on the basis of good corporate performance.

Whether funds can be rendered more appealing to retail investors is an issue that our policy makers can think about seriously - fund managers would consider themselves lucky if the annual budgetary exercise can really spur retail interest this time.

The doing away with long term capital gains tax and decrease in short term capital gains tax (for equity fund investors) were generally hailed last year. No one really wants this status to change this year. As things stand, dividend paid by equity funds is tax-free, a status that no investor wants modified either. In fact, investors would also expect MFs to strengthen last year's trend on the dividend distribution front.

Whether funds will be able to pay higher quantities this year is too early to discuss at this stage, but hopes have soared nevertheless.

A word or two about equity-linked savings schemes (ELSS) may not be out of place here. Despite the tax benefits, investors have largely avoided this category so far, chiefly because of the three-year lock-in condition. This is reflected very clearly in their relatively small asset bases. The point to be noted here is that ELSS, which are essentially diversified schemes, have performed quite well last year; the trend, one hopes, will continue this year as well.

The forthcoming Budget should honestly encourage more investment in ELSS. One way of doing it is to scale up the benefits available to an ELSS investor under Section 88 of the I-T Act. However, as experts have been pointing out, the government has been actually scaling down the significance of this provision.

Fund houses will be expected to bring out more equity products this year. Some of the thematic schemes introduced in recent times have done pretty well in terms of mobilisation. More such options will be considered, it seems.

In fact, collection figures notched up recently by the likes of Tata, Sundaram, Kotak Mahindra and Franklin Templeton suggest that there is a lot of appetite for equity funds in India.

On a completely different front, one must applaud Mr Krishnamurthy Vijayan for some plain speaking on unit linked insurance plans. The CEO of JM Mutual Fund has stated quite pointedly that ULIPs seem to be a good choice till you realise that not only is your money locked away for years - 5-25 years is quite normal - but also a large chunk of your investment in the first few years is used to cover costs!

In fact, having read his piece, we can only reiterate our point that investors must consider all factors before they actually buy ULIPs.

Diversification across stocks of different market caps is essential for deriving optimal returns from your equity investments.

Franklin Templeton Mutual Fund

Feedback may be sent to nilanjan@thehindu.co.in

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Funds expect Budget booster to spur retail interest

Stocks of negative net worth firms sizzle

Dalal Street looks to North Block for direction

Say `no' to false reptile prudence arising out of fear

Infosys sizzles

`It is not always wise to have short-term view'