In recent years, the domestic mutual fund industry has attracted investors across various segments. Ahead of the tax and policy proposals in the Budget, industry players, consultants, and associations are preparing their recommendations. These include addressing anomalies in the interpretation of tax laws, advocating for tax treatment parity, and other measures to support sectoral growth and help India maintain its momentum as one of the fastest-growing emerging economies.
The mutual fund industry is no exception to this trend. It has been at the forefront of contributing to the growth of capital markets. Assets Under Management (AUM) and Systematic Investment Plan (SIP) inflows reaching all-time highs at INR 68 lakh crores and INR 26,000 crores, the mutual fund sector has successfully penetrated the Indian market, channelling household sector funds back into the capital markets.
The year 2023 saw a couple of new entrants in this most lucrative financial service. Another 6 applicants are about to step into this INR 68 trillion industry in 2025, as the capital markets regulator has granted them in principle approvals in the past couple of months which includes large established corporate houses venturing in this evolving sector.
In Budget 2024, one of the key proposals was the reintroduction of indexation benefits, which had been withdrawn the previous year. The industry is now hopeful for similar tax reforms in Budget 2025, particularly the return of tax relief for debt funds and the potential reintroduction of indexation benefits.
Economically, indexation benefits are designed to neutralise the impact of inflation when calculating the cost of investments. The withdrawal of such benefits would result in higher taxable gains, resulting in increased tax liability. This could act as a significant deterrent for investors looking to deploy funds in the debt markets.
Also read: Personal Taxation in Budget 2025: Our top 10 predictions
Another widely anticipated request is the introduction of tax incentives to the Debt-Linked Savings Scheme (DLSS), similar to those available for Equity Linked Savings Scheme (ELSS). Such incentives would encourage long-term savings by retail investors in high-quality debt instruments while also helping to deepen the bond market. Investments in DLSS should be eligible for deductions under Section 80C of the Income Tax Act, 1961,
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