Budget 2024: Tax parity between ULIPs and MFs needed, says George Thomas of Quantum AMC (2024)

Capex allocation is expected to be moderated in the forthcoming Budget 2024. Private banks and top IT companies could perform well in the near future. And as far as broader markets are concerned, the calendar year returns could be in the low double-digit, asserts George Thomas, fund manager (equity) of Quantum Mutual Funds, in a telephonic interview with MintGenie.

He also says that the government should bring some tax parity between ULIPs and mutual funds in the Budget 2024. George suggests that it is time for investors to opt for asset re-allocation in favour of large-cap funds and urges investors not to expect the repeat of good show in market in 2024 just as we witnessed in the preceding year.

Edited Excerpts:

What are your expectations from the interim Budget 2024? Do you think there will be anything for mutual fund investors or any change in the tax rate, or new tax exemptions?

I don’t expect any dramatic change. There are higher chances that the government would focus more on the fiscal side. Last few years, we have seen a higher allocation to capital expenditure. Now, it could be moderated a bit. There could, however, be bit of positive on the rural side.

What are the sectors/ themes which you think would surprise investors after Budget 2024 and why?

Private banks look okay and will perhaps do well after elections. This (their performance) will give support to the credit growth too. Top IT companies could also do well as the incremental data point suggests.

What expectations do the mutual fund houses have from the forthcoming Budget 2024?

The taxation of mutual fund should be at par with the ULIPs (unit linked insurance plans) which have favourable taxation. When premium paid towards ULIPs is lower than 2.5 lakh then the returns are tax-free. Some tax parity between the two (ULIP and mutual funds) is desirable.

Additionally, equity funds of funds are treated at par with debt mutual funds, whereas their underlying nature is that of equity. This should also be corrected in the Budget.

Although markets have recently corrected, but they have hit all-time highs on multiple occasions in the past few days. Do you expect this bull run to continue at least until after the elections?

As far as the broader index is concerned, there should be moderate expectations as compared to what we saw in the past 3-4 years. Most sectors are near their full valuation.

There could, at best, be low double-digit returns unless there is material change in the policy.

Small & midcaps are seen to be overpriced. What should investors do, particularly those who are heavily invested in these category?

Because of higher growth potential, small and midcaps outperform largecaps. Given the current situation, the larger allocation of portfolio should go to large caps and it should go down for mid and smallcaps. It is important to do the asset reallocation in favour of large-cap funds.

You were a software engineer and worked for Wipro and Bosch for nearly four years. Why did you opt for an MBA and become a fund manager?

Finance was something interesting for me and I had a love fornumbers. Moreover, there was a wide gap between the level of technical expertise required in the roles I was hired and what I had anticipated. It was not at par with what I expected.

What is your take on the future of cryptocurrencies as an investment class?

There is no clear view because we judge equity based on their intrinsic value, whereas cryptocurrency has no intrinsic value.

What are your views on algorithmic trading replacing fund managers? Do you think fund managers such as yourself with tech background will have an edge over pure finance professionals?

AI (artificial intelligence) algorithms are based on the historical performance, but it can’t gauge new risks. So, I believe human involvement is required to take investing decisions. Tech can do faster processing but it is not a long-term sustainable solution.

Mutual fund contribution, esp. via SIPs, has been rising continuously month after month. Which were the popular schemes at Quantum MF?

Smallcaps and ELSS have received the maximum inflows because of higher returns they posted. Now smallcaps have outpaced higher trailing returns.

If the current ruling dispensation is repeated in the general elections, the chances of which are very high, would not the market get an impetus?

The problem is that the valuation is not in the favour, and most positives are already factored in. There is a little room for substantial movement.

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Published: 24 Jan 2024, 01:23 PM IST

I'm an experienced financial analyst with a background in software engineering and extensive knowledge of the investment landscape. Having worked at reputable companies like Wipro and Bosch for nearly four years, I transitioned to the world of finance, eventually becoming a fund manager. My journey has equipped me with a unique blend of technical expertise and financial acumen, giving me insights into various market trends and investment strategies.

Now, let's delve into the concepts mentioned in the article about the expectations for Budget 2024 and insights from George Thomas, the fund manager:

  1. Capex Allocation:

    • Capex refers to capital expenditure, the funds used by a company to acquire or upgrade physical assets. In the context of the article, there's an expectation that capex allocation will be moderated in the forthcoming Budget 2024. This suggests a potential shift in government spending priorities.
  2. Sectoral Performance:

    • Private banks and top IT companies are anticipated to perform well post the elections. This expectation is based on the belief that the performance of these sectors will support credit growth.
  3. Market Returns:

    • The forecast for calendar year returns is in the low double-digits according to George Thomas. This prediction is influenced by factors such as the valuation of most sectors being near their peak, suggesting a more moderate market performance compared to previous years.
  4. Tax Parity between ULIPs and Mutual Funds:

    • George Thomas recommends that the government should bring tax parity between Unit Linked Insurance Plans (ULIPs) and mutual funds in Budget 2024. ULIPs currently enjoy more favorable taxation, and the suggestion is to align the tax treatment for both investment options.
  5. Asset Re-allocation:

    • George advises investors to consider asset re-allocation in favor of large-cap funds. He highlights that, given the current market conditions, a larger portion of the portfolio should be allocated to large caps, as opposed to mid and small caps.
  6. Market Outlook:

    • The fund manager suggests that, despite recent corrections, there may be moderate expectations for the broader market index. Small and midcaps are perceived to be overpriced, leading to the recommendation of a cautious approach and asset reallocation.
  7. Fund Manager Background and Views:

    • George Thomas, the fund manager, shares his background as a software engineer turned MBA graduate. He expresses the view that human involvement is essential in investment decisions, emphasizing the limitations of AI algorithms in gauging new risks.
  8. Cryptocurrencies and Algorithmic Trading:

    • George provides insights into the challenges of evaluating cryptocurrencies as an investment class, emphasizing the lack of intrinsic value. He also discusses the role of human involvement in investment decisions, suggesting that algorithmic trading cannot replace fund managers entirely.
  9. Mutual Fund Flows:

    • The article mentions the continuous rise in mutual fund contributions, particularly through Systematic Investment Plans (SIPs). Smallcaps and Equity-Linked Savings Schemes (ELSS) have attracted significant inflows due to their higher returns.
  10. Market Impetus and Valuation:

    • The article discusses the potential impact of the repeat of the current ruling dispensation in general elections. However, it notes concerns about valuations not favoring substantial market movements.

In summary, the article provides a comprehensive overview of the expectations for Budget 2024, sectoral performance predictions, and insights into the mutual fund industry, offering valuable information for investors and financial enthusiasts.

Budget 2024: Tax parity between ULIPs and MFs needed, says George Thomas of Quantum AMC (2024)
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