I refer to the Budget proposals made yesterday, specifically the ones to amend the way gains from debt funds will be taxed.
I guess the objective would have been to plug an area that was impacting tax collections. One has to admire how perfect a choice this is- high on impact, and low on collateral damage, with some potentially interesting side effects to boot. For me, the most interesting of these would be the impact this has on the mutual fund industry.
Mutual funds were originally envisioned as a means to help retail investors build long-term wealth. Yet, over the years, the industry did little to justify its existence for this purpose. It chased corporates and high net-worth individuals, ignoring the masses. It unabashedly marketed FMPs as a way to get around the taxes that other debt instruments would involve. In short, the industry constantly looked around for easy, short-term profitability.
Sure, exceptions were (and are) there, but as a whole, the industry has taken little pride in the nobility of the purpose for which it existed. If the Budget proposals do become a reality, this will, in my opinion, be the biggest wake-up call the industry has ever had.
