The Hindu Business Line : MF industry expects Budget to boost its asset base

THE BUDGET over, it's time to take a hard look at your portfolio, examine the feasibility of re-balancing it with a view to factor in emerging market trends and new life goals that may have become significant in recent times.

For investors in mutual funds, there is news in the shape of a few key budgetary proposals. While gold-linked units have been mooted, there is a much broader and more interesting proposal to stamp out certain existing tax benefits on investments and club them in a collective Rs 1 lakh limit.

This, the asset management industry feels, would encourage savers - individuals would identify the options that are best suited to their requirements. Tax considerations alone would not be of paramount significance.

For the taxpayer, the prevailing sectoral caps are not relevant and the relative attractiveness of tax planning options (vis-à-vis such savings products as NSC and PPF) would increase.

Let us now turn to a few sound bytes, ones that stand out in the babble that followed immediately after the Budget. For starters, let us zero in on Mr Naval Bir Kumar, MD of Standard Chartered MF, who feels that the higher net borrowing programme of the Government would exert pressure on interest rates from April onwards.

"In 2004, interest rates had started to rise after the Government began its borrowing programme in April but it was also coupled with rising inflation and uncertainty on offshore interest rates. In 2005, the market has factored in rising offshore interest rates and inflation is likely to remain around five per cent. Pressure on interest rates may hence be limited and depend more on the level of liquidity that is allowed to remain in the system", he maintains.

According to Mr A.K. Sridhar, CIO of UTI Mutual Fund, the rationalisation of personal income-tax slabs (along with scrapping the deductions under Sections 88 and 80L, and introduction of the new Section 80C) would actually bring in long-term money into the capital market, complete with greater participation by retail participants.

For the financial planner fraternity, the Budget has probably brought good news too. As Mr Ranjeet Mudholkar, CEO of Association of Financial Planners, puts it, the removal of Section 88 benefits (added to the deduction from taxable income for investments made up to Rs 1 lakh) should spur the habit of planning.

These proposals would induce investors to move away from investments in government/small savings schemes, especially the ones made purely on tax saving or security considerations. "However, there is a danger that people may invest in certain instruments without realising the long term implications," Mr Mudholkar has noted, adding that planners may well advise clients on their `life goals'.

It needs to be seen how MF investors react to these proposals. Fundmen feel that the latter would really result in fresh allocations in the months ahead.

On another front, a few new offer documents are awaiting regulatory approval. These include a few equity products (UTI, Chola and Fidelity) and a clutch of fixed maturity plans (Reliance, Standard Chartered, Deutsche).

It would be interesting to see how Fidelity positions its brand in India. Serious investors would - justifiably - expect it to do a lot towards raising the level of awareness about MFs in this country.

The level of an index should not be used as a barometer for investing. In a growing economy like India, equity markets will mirror the growth in the corporate sector and its fundamentals

Ravi Mehrotra, Franklin Templeton Mutual Fund

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

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