Mutual fund industry wishlistt from Budget 2025: From reduced taxes on debt funds to higher incentives for ELSS
As we are just one week away from the crucial Union Budget announcement for the financial year 2025-2026, expectations across sectors and industries are pouring in. Likewise, the mutual fund industry is no exception and in fact has a long list of expectations from more tax incentives for ELSS to higher proportion of pension fund investments in equities from the Finance Ministry.
So, here is detailed the wishlist of mutual fund industry in pointers:
Association of Mutual Funds seeks restoration of LTCG tax benefits for debt funds
Effective April 1, 2023, the indexation benefit for long-term capital gains (LTCG) on debt mutual funds was removed, and gains were taxed according to the individual’s income tax slab rate. Since then, debt funds have seen declining investor preference evident from the decreasing number of folios (71.18 Lacs as on 30th Apr’24 vs 68.56 Lacs as on Nov’24). Debt funds have traditionally relied on indexation benefits to neutralise the inflationary impact.
Restoration of LTCG tax benefits may help investors reconsider fixed-income schemes as a part of their asset allocation, noted Rajesh Bhatia, CIO, ITI Mutual Fund.
Lower tax rate for debt funds
Bhatia added that In the July 2024 budget, the government introduced a 12.5 per cent LTCG tax on listed and unlisted securities without indexation, but debt mutual funds continued to remain taxed at the applicable income tax slab rate. With indexation benefits lost and debt funds now being charged at the applicable income tax slab rate, many investors had started evaluating other investment alternatives within similar risk category but with a better post tax return potential. Hence, a tax reduction could potentially attract investors back to considering debt funds thereby boosting inflows in the debt schemes.
Increased tax incentive for ELSS
Jaiprakash Toshniwal- Fund Manager – Equity, LIC Mutual Fund AMC expects the centre to enhance tax incentives under Section 80C for Equity-Linked Savings Schemes to boost retail participation and promote long-term wealth creation.
Higher proportion of pension fund investments into equities
The industry stakeholders also demand an increase in the proportion of pension fund investments in equities, which could enhance returns and deepen the capital markets.
Boosting digital infra and expanding financial litreracy
Strengthening digital infrastructure and expanding financial literacy programs in rural and semi-urban areas remain critical for tapping underserved markets. Such measures may enable the industry to contribute significantly to financial inclusion and economic growth, added Toshniwal