Market participants say predictable taxation and targeted incentives could play a key role in accelerating household financialisation and deepening capital markets.
According to Swapnil Aggarwal, Director at VSRK Capital, the industry’s expectations largely reflect concerns around tax efficiency and long-term returns.
He said AMFI’s budget proposals aim to remove tax distortions that have emerged in recent years, particularly for debt mutual funds. “Restoring indexation benefits for debt funds and simplifying capital gains taxation would improve post-tax returns and make mutual funds more competitive as long-term investment vehicles,” Aggarwal said, adding that investors have become increasingly tax-sensitive.
The removal of indexation benefits in March 2023 had an immediate impact on long-term debt fund inflows, according to Rahul Bhutoria, Director and Co-founder of Valtrust. He said the policy change reduced the attractiveness of debt mutual funds at a time when the economy requires stable domestic capital.
“Restoring tax parity for debt mutual funds can bring household and HNI capital back into fixed income, deepen bond market liquidity, and support corporate and infrastructure financing,” Bhutoria said.
Industry participants are also seeking broader rationalisation of capital gains taxation.
Aggarwal noted that lower and more predictable capital gains taxes could encourage sustained retail participation, particularly through SIPs and retirement-focused products.
He said recent personal income tax relief measures have improved disposable incomes, and further incentives could extend investment horizons and support systematic investing.
Retirement-oriented mutual fund solutions form another key area of expectation.
Aggarwal pointed to proposals such as pension-style mutual fund schemes, voluntary retirement-linked accounts, and debt-oriented savings products as mechanisms to channel long-term household savings into productive financial assets.
“Such measures can improve retirement preparedness while reducing reliance on physical assets,” he said.
From a market structure perspective, simplification of capital gains rules, securities transaction tax, and procedural aspects such as scheme switching and consolidation could improve liquidity and operational efficiency, according to market participants.
At a broader level, macro-fiscal stability remains important for mutual fund markets, particularly fixed income.
Namrata Mittal, Chief Economist at SBI Mutual Fund, said adherence to the government’s fiscal consolidation path and continued focus on capital expenditure would shape bond market supply and yields in FY27. She added that the fixed-income market will closely track government borrowing plans and Finance Commission recommendations, as these factors influence debt fund performance.
While expectations of major changes to mutual fund taxation remain limited, Shridatta Bhandwaldar, CIO–Equities at Canara Robeco Asset Management, said avoiding further tax tightening is critical.
“Past increases in mutual fund taxation hurt investor sentiment without significantly improving revenues,” he said, adding that stable policy would allow investors to plan asset allocation with greater confidence.