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

Greetings, I'm a seasoned financial expert with a background in software engineering, having spent nearly four years working at Wipro and Bosch. My transition into the world of finance stemmed from a genuine interest in numbers and a realization that there was a significant gap between the technical expertise required in my engineering roles and my own expectations. I hold an MBA and currently serve as a fund manager, bringing a unique blend of technological insight and financial acumen to my role.

Now, let's delve into the key concepts mentioned in the provided article:

Capex Allocation in Budget 2024:
- The article suggests that capital expenditure (capex) allocation is expected to be moderated in the forthcoming Budget 2024. This implies that the government might focus more on fiscal aspects rather than significant increases in capital spending.
Performance of Private Banks and IT Companies:
- The article mentions that private banks and top IT companies are expected to perform well in the near future. This positive outlook is attributed to potential support for credit growth and positive indicators for IT companies based on incremental data points.
Market Returns Outlook:
- The fund manager, George Thomas, predicts that the broader market returns for the calendar year could be in the low double-digits. This is a moderate expectation compared to the past few years, with most sectors near their full valuations.
Tax Parity Between ULIPs and Mutual Funds:
- George Thomas emphasizes the need for tax parity between Unit Linked Insurance Plans (ULIPs) and mutual funds in Budget 2024. He suggests that favorable taxation for ULIPs should be extended to mutual funds to encourage investor interest.
Asset Re-allocation Recommendation:
- The fund manager advises investors to consider asset re-allocation in favor of large-cap funds. He notes that, given the current situation, a larger allocation of the portfolio should go to large caps, with a reduced allocation for mid and small caps.
Outlook on Cryptocurrencies:
- George Thomas expresses uncertainty about the future of cryptocurrencies as an investment class. He highlights the lack of intrinsic value in cryptocurrencies and contrasts this with traditional equity investments that are evaluated based on intrinsic value.
Role of AI in Investment Management:
- The fund manager dismisses the idea of algorithmic trading entirely replacing fund managers. He believes that human involvement is crucial for making investment decisions, as artificial intelligence algorithms may struggle to gauge new risks.
Mutual Fund Inflows and Popular Schemes:
- The article mentions the continuous rise in mutual fund contributions, especially through SIPs (Systematic Investment Plans). Smallcaps and Equity Linked Saving Schemes (ELSS) have received the maximum inflows due to their higher returns.
Market Impetus in Case of Repeated Ruling Dispensation:
- The article discusses the potential impact of a repeated ruling dispensation in general elections on the market. However, it notes that the market may not experience substantial movement due to already factored-in positives and unfavorable valuations.

This comprehensive analysis provides insights into the financial landscape, potential market trends, and the fund manager's recommendations for investors in the context of Budget 2024.