How does Budget 2022 benefit Mutual Fund Industry?

The budget for 2022 might not have been completely beneficial for mutual funds. However, in some capacity, the budget was advantageous for some specific mutual funds, like the infrastructure sector funds. With the budget focusing on boosting the infrastructure sector in India, mutual funds investing in this sector can gain from the budget push. In the past year, infrastructure mutual fund returns were considerably high. Moreover, infrastructure funds are also less risky than other sector mutual funds. Apart from this, the budget also taxed the virtual digital assets, which will likely enhance the mutual fund industry. 

Here is how the budget 2022 benefitted the mutual fund industry:

Emphasis on the Infrastructure sector

The Union Budget 2022 has highly emphasized the growth of the infrastructure sector. The budget announced the GatiShakti Master plan for building expressways to promote better movement of people and goods. Further, the budget will also expand the National Highways network. The government will also inject financial aid to promote public resources. This financial influx will result in high infrastructure sector growth. The budget 2021 also focused on the infrastructure sector, which resulted in high returns for the corresponding mutual funds. The mutual fund schemes primarily investing in the infrastructure sector have generated an average return of over 51% in the past year. 

As a mutual fund investor, you can benefit in 2022 by choosing to invest in infrastructure sector funds. As a retail investor, you can choose thematic funds that invest in infrastructure companies and equity diversified mutual funds that invest a part of your money in infrastructure companies. 

However, when investing in sector-specific mutual funds, it is advisable to be careful about their risk appetite and time of entry and exit of the scheme. A blanket approach is not the best way to invest in mutual funds. 

Tax on virtual digital assets

The budget 2022 imposed taxes on virtual digital assets. Despite expectations that the budget of 2022 would result in tax concessions for mutual fund investors, there was only little relief in that department. However, the budget did indirectly boost the mutual fund industry. By taxing gains from the sale of virtual digital assets like cryptocurrency, the government helped curb speculation and redirect the investors towards well-regulated and long-term investments like mutual funds. 

Investors were choosing cryptocurrency over mutual funds recently because of the lack of regulation and taxation in the trading of digital assets in India. However, with the budget imposing a capital gains tax on the profits from crypto trading, there will be a higher channelizing of money towards financial assets like mutual funds.

The proposed cap on long-term capital gains

The budget 2022 was positive for the mutual fund industry in another aspect – tax cap. Previously, when you sold debt-oriented mutual funds, the maximum surcharge on resultant long-term capital gains was according to the status of the taxpayer and could be as high as 37%. However, the budget capped the surcharge in this case. Now the maximum surcharge on long-term capital gains on debt and equity mutual funds is 15%. This positive amendment will further benefit the mutual fund industry.

Undoubtedly, mutual funds are a wise investment avenue. Use the Tata Capital Moneyfy App to start investing in mutual funds. If you want to reduce risk, invest in mutual funds through the SIP mode and distribute your investment over a period, minimizing the market volatility.

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