“Ahead of the Union Budget, mutual fund investors should avoid trying to time the market based on budget expectations, as this can be risky and may lead to missed opportunities. Instead, focus on maintaining a long-term investment strategy and stay invested through market cycles. By adhering to a well-thought-out plan and avoiding knee-jerk reactions to budget news, investors can better achieve their financial goals. The budget should not be the reason to take action; instead, you should regularly revisit your asset allocation and market cap allocation every six months or annually. If you see any significant deviations from your targets, you should rebalance your portfolio accordingly. This disciplined approach ensures that your investments remain aligned with your financial objectives and risk tolerance, regardless of short-term market events,” said Sagar Shinde, VP Research, Fisdom.
Also Read | 3 mutual fund NFOs to open for subscription this week
Another expert recommends that investors should not do anything different ahead of budget.
Invest and Earn on ET Money – Get up to 9.5% p.a. returns
“A budget is a routine exercise every year and we do not believe investors need to do anything different for it. They should continue to invest based on their goals, risk appetite and time horizon and ignore all the noise. While the Gross SIPs are at a record high of more than Rs 21,000 crore, the concern is that the net SIPs are only just above Rs 8,000 crore a month. That means, many investors have stopped their SIPs considering the markets to be at an all-time high. SIPs and STPs should always continue and investors should not try to time the markets,” Rajesh Minocha, a Certified Financial Planner (CFP), Founder of Financial Radiance.
“Investors should focus on the fundamentals of their investments. High-quality funds with strong track records and consistent performance should remain core holdings regardless of budget outcomes. If there are funds that have significantly deviated from their target allocations, consider adjusting them. While it’s tempting to make quick changes based on budget speculations, investors should avoid hasty decisions. Long-term investment strategies should not be drastically altered based on short-term market movements or budget expectations. It is recommended to diversify investments across different sectors and asset classes to mitigate risks,” recommends Adhil Shetty, CEO of Bankbazaar.com.
AMFI recently came out with its 16-point proposal for the Union Budget which included request for tax concessions in debt mutual funds, request to amend the definition of equity-oriented funds to include fund of funds investing in equity-oriented funds, taxability of long-term capital gains under section 112A of the Act, all mutual funds should be allowed to launch pension-oriented MF schemes (MFLRS) with Uniform Tax Treatment as NPS, and few other points.
Also Read | PSU MFs outshine with up to 99% return in 1 year! Will Budget turbocharge your wealth?
Mutual fund investors have different expectations from the budget. Experts share their opinions on what investors can expect from the Union Budget 2024.
A financial advisor said that the new tax regime is likely to become more popular and the government is likely to provide more incentives for people wanting to shift from the old tax regime while another believes that the initiatives aimed at enhancing infrastructure, promoting digital payments, and simplifying taxation, along with other measures are likely to boost market sentiment, enabling investors to make financial decisions with greater confidence and reduced concern.
“As always, this year also there are high expectations from the budget. Investors are looking forward to reducing income tax rates and increasing zero income tax limits, considering the purchasing power of money has been reduced due to inflation. The new tax regime is likely to become more popular and the government is likely to provide more incentives for people wanting to shift from the old tax regime. There is a demand to remove capital gains tax if equity mutual funds are held for more than three years. There are also demands for similar capital gains taxes across various categories,” said Minocha.
He also added that, “There were similar demands earlier as well, and that’s when the indexation benefit on debt mutual funds was removed and it was a major negative for the industry. But soon the industry and the investors were able to adapt. Investors need to believe in India’s story and even if there are no sops provided, as long as there is no major bad news, I think it will be a very positive step for India and its march towards being a $5 trillion economy.”
“Investors generally anticipate initiatives aimed at enhancing infrastructure, promoting digital payments, and simplifying taxation, along with other measures to spur overall economic growth. Such announcements are likely to boost market sentiment, enabling investors to make financial decisions with greater confidence and reduced concern,” said Shetty.
Also Read | Infrastructure MF delivered upto 87% returns in one year. What’s in store after Budget?
An expert believes that this budget is not expected to deliver any negative surprises, maintaining a stable and supportive environment for economic growth and investment.
“Investors can expect the Union Budget 2024 to focus on increased capital expenditure in infrastructure, modernisation of PSUs, and support for the agriculture sector. Tax reforms, particularly adjustments to personal income tax slabs and benefits for startups and MSMEs, are also anticipated. Additionally, there will likely be continued investments in renewable energy and other green initiatives. Emphasis on healthcare expansion and social security measures for senior citizens is expected. Importantly, the budget is not expected to deliver any negative surprises, maintaining a stable and supportive environment for economic growth and investment,” comments Shinde.
Sectoral and thematic funds, such as PSU, manufacturing, infra, defence, which have been investors’ favourite for some time now, have been among the top performers in the equity mutual fund category across different horizons. Several initiatives by the ruling government in these sectors have helped these funds to deliver stellar performance.
These funds have continued to receive the highest inflows from April 2024 to June 2024 (last available data), according to the monthly data released by AMFI. From April-June 2024, sectoral and thematic funds received total inflows of Rs 46,731 crore, the highest among all equity mutual fund categories.
Now the question is which sector-based mutual funds are likely to benefit from the budget?
“The government needs to maintain a very delicate balance between fueling growth, curbing inflation, and ensuring fiscal discipline. The focus for the government will likely be sectors such as Infrastructure, defence and renewable energies like solar. However, there is also likely to be increased budgetary allocation even for other sectors like BFSI and manufacturing that cannot be ignored,” said Rajesh Minocha.
He also adds that, “Investors should not chase sector themes but should focus more on funds that are diversified and funds like business cycle funds. They should leave the sector and stock picking for the fund managers as some of these sectors could be very expensive and their valuation may not be justified.”
Also Read | These equity mutual funds deliver over 50% return in 9 months
However, Adhil Shetty believes that, “Based on current discussions and trends, upcoming budget priorities are expected to focus on infrastructure, energy, mobility, housing, digitization and technology sectors. Potential announcements in these areas could have significant implications. The Union Budget on July 23 will reveal specific details and allocations for each sector, shaping expectations and outcomes accordingly.”
“Sectors like infrastructure funds, PSU funds, manufacturing funds, and energy funds are likely to be the primary winners from the Union Budget 2024. The anticipated increase in capital expenditure on infrastructure projects will benefit construction and urban development sectors. Public sector undertakings (PSUs) will gain from government modernisation efforts and potential privatization. Additionally, energy funds are expected to benefit from continued investments in clean energy technologies and green initiatives. Manufacturing funds may also see significant benefits from enhancements to the Production Linked Incentive (PLI) scheme, which aims to boost manufacturing capabilities and support SME growth. Additionally, efforts to boost private sector capex will further enhance the growth prospects for these funds.,” said Sagar Shinde.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
If you have any mutual fund queries, message on ET Mutual Funds on Facebook/Twitter. We will get it answered by our panel of experts. Do share your questions on ETMFqueries@timesinternet.in alongwith your age, risk profile, and twitter handle.