While the Finance Minister has voiced the need for a greater focus on household savings, coming to capital markets, the measures announced may not be adequate to see any significant changes immediately. It has been a ‘give some, take some’ Budget.
The impact of surcharge on Dividend Distribution Tax (DDT) on non-equity funds will have a very slight impact. The incidence of tax will go up from 13.5 per cent to 14.15 per cent, but it will have a very marginal impact of say Rs 250 on a Rs 50,000 dividend.
But the proposal to hike dividend distribution tax on debt mutual fund schemes from 12.5 per cent to 25 per cent for individuals and HUFs may discourage investors from coming to these schemes which had become the ‘anchor’ of individual investors portfolio over the last five years.
The rationale given in the Budget document is hard to understand — why does there need to be parity between individual investors and institutions.
Investors will now be better off investing in Debt Funds in Growth Option and withdraw money through Systematic Withdrawal Plan route.
There have been small gains in the form of income limit on Rajiv Gandhi Equity Saving Schemes (RGESS) being raised from Rs 10 lakh to Rs 12 lakh and investors being allowed to stagger their investments over three years. Tax-free bonds will now continue for another year and that too with an enhanced limit of Rs 50,000 crore, which is positive, but the response to tax-free bonds in the current year has been lacklustre because of low yields and investor unwillingness to go into very long tenure (10-15 year) bonds.
The announcement of inflation index bonds to be launched in near future is positive. One will wait to see the actual structure of these. Investors these days generally do not like to commit investments for a period longer than 3-5 years.
Hence, if these are very long tenure (7-10 year) bonds, then they may not invest. There was no change in regulation on corporate bonds, apart from the fact that FIIs can now place them as collateral for margin requirements.
(The writer is Vice-Chairman and Managing Director, Bajaj Capital)