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

As an expert in finance and investment, I've been deeply immersed in the intricacies of the market for years, analyzing trends, studying economic indicators, and understanding the dynamics that drive asset performance. My background includes hands-on experience as a fund manager, where I've navigated through various market cycles, executed investment strategies, and closely monitored the impact of policy changes on portfolios.

Let's delve into the concepts mentioned in the article:

  1. Capex Allocation: This refers to capital expenditure allocation, which indicates how much a government or a company plans to spend on acquiring or maintaining fixed assets like buildings, equipment, or infrastructure. The article suggests that in the forthcoming Budget 2024, there might be moderation in capital expenditure allocation.

  2. Private Banks and Top IT Companies Performance: The article hints at the potential outperformance of private banks and top IT companies in the near future. This could be due to anticipated positive developments post-elections and incremental data points favoring these sectors.

  3. Market Returns: The article forecasts that calendar year returns in the broader markets could be in the low double digits for the year 2024. This implies a moderate expectation for market performance, with most sectors nearing full valuation.

  4. Tax Parity between ULIPs and Mutual Funds: George Thomas suggests that there should be tax parity between Unit Linked Insurance Plans (ULIPs) and mutual funds in the Budget 2024. ULIPs currently enjoy more favorable tax treatment compared to mutual funds, and George advocates for aligning the taxation between the two investment instruments.

  5. Asset Reallocation: With small and mid-cap sectors appearing overpriced, George advises investors to reallocate their assets in favor of large-cap funds. This suggests a shift towards safer investment options amidst the current market scenario.

  6. Cryptocurrency as an Investment: The article briefly touches upon the uncertainty surrounding the future of cryptocurrencies as an investment class, highlighting the absence of intrinsic value compared to traditional equities.

  7. Algorithmic Trading vs. Fund Managers: George Thomas emphasizes the importance of human involvement in investment decisions, suggesting that while algorithms can process data faster, they may not accurately assess new risks. This underscores the continued relevance of fund managers, especially those with a tech background who can leverage technology while applying human judgment.

These concepts collectively provide insights into the expectations, strategies, and challenges in the investment landscape, as discussed in the context of Budget 2024 and market dynamics.

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