Hike in capital gains may cause some headwinds for investors
Tata Asset Management has long been known for its focus on active funds. But with the launch of thematic funds such as Tata Nifty India Tourism Index Fund, the fund house is looking at a diversified product mix. “We have been offering niche scalable segments of the equity market in passive investing, where the risk-reward is favourable and can create long-term value,” Chandraprakash Padiyar, Senior Fund Manager at Tata Asset Management, told businessline.
How do you read the Budget with respect to asset management business? Highlight some key positives.
Budget FY25 has proposed to increase short-term capital gains tax to 20 per cent from 15 per cent and long-term capital gains tax to 12.5 per cent from 10 per cent. Also indexation benefit has been withdrawn for fixed income mutual funds. Tax increase for equity investment raises the bar for potential returns for investors. Equity markets undergo cycles and the impact of higher tax on capital gains will provide some headwinds for investors. Fixed income investors will probably face higher headwinds from the removal of indexation benefits.
Fund houses had a lot of expectations from the Budget. What do you think are major misses in the Budget, or could have been handled differently?
We think Budget FY25 was very well balanced, specially with the government adhering to fiscal discipline and guiding to lower debt to GDP over the medium term. Fiscal deficit targets have been reduced to 4.9 per cent for FY25 and below 4.5 per cent for FY26. Net borrowings by the government is likely to be range bound for the foreseeable future leading to much higher room for the private sector to participate in the growth of the economy. Capital gains tax increases can be categorised as a miss from our perspective.
You have launched many passive funds recently, how are they doing? Also about your sectoral theme, especially tourism…
As a full-spectrum mutual fund, at Tata Mutual Fund, we intend to offer all kinds of investment opportunity to investors. Our desire is to be a one-stop shop for everything that an investor would like to choose from. In line with that objective, we have started on our journey to offer passive funds.
What is your current active vs passive mix? Is there a change in strategy for the company?
These are early days for our passive funds and we aspire to build a good reputation from this segment over the long term.
Is restriction still on for investments in small-cap funds? When do you think the cap can be lifted?
Tata Small Cap Fund decided to restrict lump-sum flows in the scheme in June 2023. We are still getting inflows in the small-cap fund through SIP and we do not see any problem in handling them or lift the restrictions imposed on the small-cap fund as there are no changes in the impediments including valuation, liquidity and fresh ideas ever since the cap was imposed.
As of now, we have not made any decision to change the status quo and based on risk reward for incremental investments we will keep reviewing regularly.