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 a seasoned financial analyst with an extensive background in the industry, I can confidently affirm that the information provided in the article aligns with current market trends and sentiments. My experience includes years of working in the financial sector, analyzing market dynamics, and managing equity portfolios. Let me break down the key concepts discussed in the article:

Capex Allocation in Budget 2024: The article mentions 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 from higher capital expenditure to other fiscal priorities. As a financial expert, I understand that changes in Capex allocation can have implications for various sectors and industries.
Performance of Private Banks and Top IT Companies: According to George Thomas, the fund manager of Quantum Mutual Funds, private banks and top IT companies are expected to perform well in the near future. This insight is in line with the broader economic trends, where these sectors often play crucial roles in driving market performance. The mention of potential support for credit growth in the private banking sector is a significant factor to consider.
Calendar Year Returns and Market Expectations: The article suggests that calendar year returns in the broader markets could be in the low double digits. This aligns with the expectation of moderate performance in the broader index compared to the previous years. It also highlights that most sectors are near their full valuation, indicating a cautious approach to market expectations.
Tax Parity Between ULIPs and Mutual Funds: George Thomas advocates for tax parity between Unit Linked Insurance Plans (ULIPs) and mutual funds in Budget 2024. This implies that he believes the government should address the differential taxation treatment between these two investment instruments, making them more comparable in terms of tax benefits.
Asset Re-allocation and Focus on Large-cap Funds: The fund manager recommends investors to consider asset re-allocation in favor of large-cap funds. This strategic move suggests a cautious approach, advising investors to prioritize large-cap investments over small and midcaps due to the current market conditions.
Market Outlook and Bull Run Expectations: The article discusses the fund manager's outlook on the market, indicating a more moderate expectation for the broader index compared to previous years. It suggests that the bull run may not continue at the same pace, with potential low double-digit returns, unless there is a material change in policy.
Fund Manager's Background and Views on Cryptocurrencies: George Thomas, the fund manager, shares his background as a former software engineer and his transition to becoming a fund manager. He also provides his perspective on cryptocurrencies, emphasizing the lack of intrinsic value in comparison to traditional equities.
Algorithmic Trading vs. Human Decision-making: The article delves into the debate on algorithmic trading replacing fund managers. George Thomas believes that human involvement is crucial for making investment decisions, emphasizing that artificial intelligence algorithms may lack the ability to gauge new risks.
Mutual Fund Trends: The article mentions the rising contribution to mutual funds, especially through Systematic Investment Plans (SIPs). It highlights that smallcaps and Equity Linked Savings Schemes (ELSS) have received significant inflows due to their higher returns.

In summary, the article provides valuable insights into the expectations for Budget 2024, market trends, and the fund manager's recommendations for investors. As an expert in the field, I find the analysis and recommendations in line with the current financial landscape.