What mutual fund want from FM in this Union Budget 2024

In anticipation of Budget 2024, various segments of the economy have distinct expectations. Individual taxpayers are hoping for lower income tax rates, while corporate entities are looking forward to increased stimulus measures to boost investments. Small investors are keen on favorable changes in capital gains taxes and other provisions that benefit them.

Institutional investors are emphasizing the importance of fiscal discipline and the continuation of stable economic policies. Specifically, mutual fund houses are anticipating the government to lower the fiscal deficit target to less than 5% and raise the threshold for Long Term Capital Gains (LTCG) tax applicability from ₹1 lakh to ₹3 lakh. These measures are seen as crucial for supporting economic growth and boosting investor confidence in the upcoming budget announcement.

One expert from the mutual fund industry recommends that the government consider eliminating the capital gains tax that investors currently pay when they transfer their investments from a regular mutual fund scheme to a direct mutual fund scheme.

Budget 2024: Key Expectations of the Mutual Fund Industry

(1) Fiscal consolidation

A senior fund manager at Tata Asset Management, emphasizes the critical importance of maintaining fiscal discipline in the upcoming budget. Fiscal discipline refers to how well the government manages its spending and borrowing to ensure economic stability. It directly influences several key factors like domestic liquidity (availability of money in the economy), currency movement (value of the rupee against other currencies), inflation (rate at which prices of goods and services rise), interest rates (cost of borrowing money) and indirectly, the outlook for the equity market.

He said that the primary focus in the upcoming budget will be on the government's fiscal deficit targets. For the fiscal year 2024-25, the government's target is to achieve a fiscal deficit of 5.1% of GDP. Looking ahead to FY26, the target is to bring the deficit below 4.5% of GDP. These targets reflect the government's commitment to managing its finances prudently amidst economic priorities and upcoming elections. Achieving these targets is crucial for maintaining investor confidence and supporting sustainable economic growth.

(2) Focus on infra and SME sector

Many mutual fund experts believe the Finance Minister will focus on two main areas in the upcoming budget controlling government spending and boosting key sectors like infrastructure and small businesses. They anticipate that the government will set a fiscal deficit target of less than 5%, a reduction from the current 5.1%. There's also likely to be increased support for social welfare in rural areas, with states contributing resources. Infrastructure improvements will be a priority to address supply chain challenges, and efforts to stimulate growth in the SME sector are anticipated.

(3) Fall in market borrowings

Some experts anticipates that the government may reduce its borrowing requirements following a bumper dividend payout from the RBI. There is also optimism that tax benefits for middle income earners will not be reduced and capital gains tax advantages on equities will remain intact. Looking at economic growth, experts suggests that the budget might emphasize increased capex on infrastructure, agriculture, and manufacturing to stimulate broad based development. Overall, the upcoming budget should aim for a well balanced approach to support economic growth and fiscal stability.

(4) Stimulus for higher private sector capex

Mutual fund industry is hoping for steps that will encourage private companies to increase their spending on building new factories and expanding operations. Stock market performance depends on how much companies earn. These earnings are driven by how much business activity happens in the country. Despite having consistent government policies for many years, we haven't seen a big increase in how much private companies are spending on new projects. If the government continues to manage money wisely and keeps economic policies stable, and if there's a strong demand for goods and services, private companies might feel more confident about investing more money to increase their production capacity. This would help them meet future demand for their products.

Final Words

Overall, Budget 2024 is anticipated to support economic growth while managing money wisely and making investors feel confident. The aniticipation is to create conditions where businesses invest more in new projects, especially in areas like infrastructure and small businesses. This helps keep the economy stable and growing even with challenges from around the world and within the country. The expectation is keeping taxes fair for everyone, encouraging more people to invest and helping businesses thrive. Overall, it's about striking a balance boosting growth, keeping finances in check and making sure investors feel secure, all while facing ongoing changes in the global and local economies.