Would You Invest in Mutual Funds Post 2018 Budget? Why?

Following the 2018 Union Budget, the question often arises whether investors should reconsider their mutual fund investments. Would this budget impact the profitability and viability of mutual funds as a long-term investment avenue?

Short Answer: Yes, Continue Investing in Mutual Funds

The recent 2018 Union Budget proposed that long-term capital gains (LTCG) on equity mutual funds would attract a 10% tax without indexation. However, it's important to note that capital gains up to 1 lakh INR in a financial year will not be taxed. This means that the majority of small investors will not be impacted by this new tax.

Investment advisors like Ankur Choudhary, a co-founder of Goalwise, suggest continuing with mutual funds despite the anticipated reduction in after-tax returns due to the LTCG tax. Even with the reduced post-tax returns, mutual funds remain one of the best long-term investment options available. They offer higher returns, excellent liquidity, and transparency compared to other investment options.

The Impact of 10% LTCG Tax on Returns

While the 10% LTCG tax does decrease the after-tax returns from equity mutual funds by a few percentage points, it still leaves mutual funds as one of the more profitable long-term investment choices. Post-tax returns of 13.5% are still significantly higher than the current inflation rates, making mutual funds a compelling choice for long-term investors.

Investors should also consider the 10,000 INR exemption, which protects the first 1 lakh in capital gains from LTCG tax. This means that for a large number of investors, the impact of the new tax is minimal. Therefore, there is no compelling reason to avoid mutual funds based on this new tax.

Government Measures and Economic Growth

The 2018 Union Budget aimed to bolster economic growth by focusing on several key sectors. Notably, the government has provided a significant boost to the rural sector by increasing Minimum Support Prices (MSP) for agricultural products. This move is expected to enhance farmers' incomes, leading to increased rural consumption and, consequently, better company profits.

Furthermore, the budget emphasized infrastructure development, which is expected to maintain economic stability and improve corporate profitability. Banking reforms, such as the consolidation of public sector banks and enhanced lending practices, will also likely lead to more investments and higher loan approvals for businesses.

For salaried individuals, the budget offers positive prospects for the future economic growth of India, fostering a more favorable environment for long-term investments. These measures collectively support the notion that mutual funds continue to be a viable and prudent investment option for fulfilling one's financial goals.

Conclusion

In conclusion, despite the introduction of the 10% LTCG tax, mutual funds remain an excellent choice for long-term investments. The governmental initiatives aimed at boosting rural, infrastructure, and economic growth provide a robust foundation for continued investment confidence. As long as investors align their investments with their risk profiles, there is no reason to deviate from this proven investment strategy.

Remember: Keep calm and keep investing. Happy investing!