Aggressive investors should go for infrastructure funds

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he much awaited second Budget by Jaitley has been presented today and the best part is the vision that he has laid out for the people of India. As Jaitley had mentioned in his Budget speech that “the world is predicting that it is India’s chance to fly”, we hope that his vision for Team India will actually help us to fly.

We had informed our Investors in our outlook for 2015 that “like Governor Rajan, even Team Modi does not believe in announcing all reforms and policy actions on a particular day”. Today’s Budget goes on to prove that point.

As far as mutual fund investors are concerned, Jaitley decided to remain on a silent mode this year after disappointing this category of investors in his maiden budget. We had hoped that there would be some good news for our investors like reversing the tax on debt funds, revamping RGESS and including more categories of mutual funds under Section 80C. However, this year as well the Finance minister has presented the budget without giving any sops to an industry, where the financial savings of the Household sector is very negligible.

In this note, I would like to discuss a few measures of the Budget, which are of relevance for our Investors:

Huge Focus on the Infrastructure sector

One of the major impediments to the growth of our economy has been the bottlenecks in the infrastructure sector. Team Modi has clearly understood this issue and has decided to increase the investment in infrastructure by INR 70,000 crore in the year 2015-16 over 2014-15 from the centre’s funds and resources. This along with other measures like establishment of National Investment and Infrastructure Fund (NIIF) ,Tax Free Infrastructure Bonds, review of the PPP mode of infrastructure development ,etc. will be a big boost to this sector. This budget is an indication that NAMO’s government has clearly recognized the importance of infrastructure development to India’s growth trajectory. In this scenario, we continue to maintain a positive stance on the infrastructure sector and would advice our aggressive investors to continue their investments into the funds focused on this sector.

NPS given priority when it comes to pension

The Finance Minister through his speech has touched upon the importance of pension for every citizen of the country. To encourage the same, Jaitley has increased the deduction on account of contribution to a pension fund and the new pension scheme  to INR 1.5 lakh from INR 1 Lakh. Along with this, an additional deduction of INR 50,000 has been allowed for NPS under Section 80CCD. Although this is a good initiative from the government, what Jaitley has forgotten to do is to rectify the flaws in the NPS, which has still not got the acceptance of our investors.

Importance of Health Insurance for Indians

Most of us salaried individuals are happy with the health insurance provided by our employers. However we do not realize that this meager amount will not be sufficient to meet the rising medical costs today. Hence, the increased deduction made for health insurance premium for individuals including Senior Citizens is a big positive not only for the insurance sector but even for individual tax payers. To conclude, we did not expect any big bang reforms from the Budget, but the Finance Minister could have done a lot more for the mutual fund investors. If in last year’s Budget, Jaitley took measures to encourage investments into the banking sector, then this year, the emphasis of the government is on insurance and gold investments. I clearly agree with the Finance Minister that a large proportion of Indians are without insurance of any kind. However encouraging investments into gold for a country which is already one of the largest consumers of the yellow metal needs to be questioned. I am of the firm belief that if retail participation has to come into capital markets then mutual funds is the most beneficial route for their entry.

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