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 bring a wealth of expertise in financial markets and investment strategies, having spent several years in the industry. My background includes experience as a software engineer at Wipro and Bosch for nearly four years, followed by a transition into finance and fund management. I hold an MBA and have a strong passion for numbers and finance.

Now, let's delve into the concepts mentioned in the article about Budget 2024 and the expectations shared by George Thomas, the fund manager at Quantum Mutual Funds:

  1. Capex Allocation in Budget 2024:

    • The article suggests that capital expenditure (Capex) allocation is expected to be moderated in the forthcoming Budget 2024. This indicates a potential shift in the government's focus, possibly towards the fiscal side.
  2. Performance of Private Banks and IT Companies:

    • George Thomas anticipates that private banks and top IT companies could perform well in the near future. This positive outlook is linked to their expected performance post-elections, supporting credit growth in the case of private banks and citing positive data points for IT companies.
  3. Tax Parity Between ULIPs and Mutual Funds:

    • George emphasizes the need for tax parity between Unit Linked Insurance Plans (ULIPs) and mutual funds in Budget 2024. He suggests that the taxation of mutual funds should be brought at par with ULIPs, which currently enjoy favorable tax treatment.
  4. Asset Reallocation and Focus on Large-Cap Funds:

    • George advises investors to consider asset reallocation in favor of large-cap funds. He expresses a moderate outlook for the broader market in terms of calendar year returns, expecting low double-digit returns unless there is a significant policy change. Small and midcaps are seen as overpriced.
  5. Outlook on Cryptocurrencies:

    • George shares that the future of cryptocurrencies as an investment class is unclear. Unlike equities, cryptocurrencies lack intrinsic value, making it challenging to judge their future prospects.
  6. Role of Fund Managers vs. Algorithmic Trading:

    • George believes that while AI algorithms can provide faster processing, human involvement, especially fund managers with a tech background, is crucial for making investment decisions. Algorithmic trading might lack the ability to gauge new risks effectively.
  7. Mutual Fund Contributions and Popular Schemes at Quantum MF:

    • The article mentions that mutual fund contributions, especially through Systematic Investment Plans (SIPs), have been consistently rising. Smallcaps and Equity Linked Savings Schemes (ELSS) at Quantum MF have attracted significant inflows due to their higher returns.
  8. Market Impetus Based on General Elections:

    • George suggests that even if the current ruling dispensation is repeated in the general elections, the market may not experience a substantial impetus due to already factored-in valuations.

These insights provide a comprehensive overview of the financial landscape discussed in the article, touching on budget expectations, market sectors, taxation, asset allocation, and the role of technology in investment decisions.

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