Impact on Mutual Funds after Budget 2018.

Budget 2018 and its impact on Mutual Funds:

Budget 2018 main highlights

Highlights of finance Budget 2018

The Finance Minister yesterday came up with his much awaited budget proposals for all round economic development of India.It has always remained in the top priority list of every previous Government to find out new avenues to increase revenue and decrease fiscal deficit.This budget is also no different.

I personally feel that since all other avenues of revenue collection probably reached its optimum level,the Finance Ministry did not have any other options left but to look for increasing tax/revenue collection from Equity Mutual fund industry and Capital markets.

It is to be pointed out that domestic mutual fund investments have been continuously growing at a rapid speed for last 3 to 4 fiscal years.This may be due to continuous falling bank interest rates and also may be AMFI’s great initiative of “Mutual Fund Sahi hay” campaign,stability in Government, India’s growth concentration,Demonetization, controlled inflationary condition and probably continuous all round best performance of Mutual Fund industry in recent years. This has led to huge increase in the trust level of investors towards equity market and pumped up their confidence to invest into equities through Mutual funds generously.

To make this topic easy understanding I am sharing some crucial information regarding Mutual Funds for recent pasts.

AMFI data shows that the MF industry had added about 9.26 lacs SIP accounts each month on an average during the FY 2017-18 upto December 2017, with an average SIP size of about ₹3,300 per SIP account. Month-wise amount collected during FY 17-18 is as mentioned below :

SIP monthly contribution

Month wise SIP contribution

Therefore, we can see from the above table that MF investment up to December 2017 stood ₹47,002 Crore as compared to ₹43,921 Crore for F.Y 2016-17.This has been quite remarkable for MF industries up to December 17 before budget 2018 announcements.

Now let’s compare Mutual Fund taxation before and after budget announcements with some questions.

Untitled spreadsheet - Sheet1 (6)-1

                                                      Capital Gain taxation on Mutual Fund & Shares                                        

Therefore, it is quite visible that Government’s this new long term capital gain(LTCG) move is going to definitely drive the mutual fund and stock market investors in despair.It would affect the MF investors R.O.I adversely.Though this move would fetch the Government a marginal revenue of 20,000 Crore in the next fiscal year of 2018-19.

This budget may bring some joy for rural farmers and senior citizens but very disappointing for the equity investors overall.Only time will say whether this move will put the economy move forward or backward.

Synopsis of LTCG impact on Shares.

LTCG impact on Shares

Conclusion: Though capital gain from redemption of units of mutual funds or sale of stocks would be taxable after the grandfathered date 31st January 2018@10.04% if LTCG exceeds ₹1 lakh in a year,still it should be everyone’s top priority over and above the other investment options available right now.Lastly, I am hopeful enough that the power of compounding and rupee cost averaging of SIP would bring some joy to the investors and would help them to forget the agony of new LTCG proposal.

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