Tax Reforms To Push MFs Higher

What will be the impact of the corporate tax rate cut on mutual funds? Our study shows that they will indeed stand to benefit. However, now it is in the hands of companies to use this benefit provided by the finance ministry. Meanwhile, for mutual fund investors a ‘wait and watch’ stance is advisable.

July 6, 2019, turned out to be a historic day for India in terms of its economy. This is when Finance Minister Nirmala Sitharaman presented the Union Budget with a vision for the next 10 years. Unfortunately, in just a short span of time, the Indian economy has started showing signs of moderation and hit a rough patch. The stock market has begun to bear the brunt of an economic slowdown thanks in some measure to the tax imposed on the super-rich. In order to infuse some corrections, the finance minister has henceforth made many provisions through a series of Friday announcements. This includes rolling back the enhanced surcharge on foreign portfolio investors that were present in the original budget.

This has been done to encourage investments in the Indian capital market. The government has, since then, also withdrawn the angel tax provisions for start-ups and even for investors. To provide liquidity in the financial system of up to Rs 5 lakh crore, capital infusion of Rs 70,000 crore was done into the public sector undertaking banks. Provisions have also been announced to make loans for homes and automobiles cheaper as well as for consumer goods. Now, to improve the sagging economic growth, the government has also relaxed its stringent fiscal deficit targets. This was done by introducing a deep cut on the corporate tax rate. When this news was made public on September 20, 2019, the equity markets turned buoyant.