The share of financial savings of Indian households has risen from 33% in fiscal 2013 to 40% in fiscal 20201. However, as much as 40% of this is parked in low-yielding bank deposits. Only 4% is invested in market-linked instruments such as equities and debentures, including mutual funds. This needs to change if households are to enjoy better returns, while also providing a boost to the capital market and for the imperative of infrastructure build-out.
Channelize debt investment affinity into fixed income market
The budget can go a long way in making debt investments attractive, and deepen the corporate bond market also in the process. Debt-linked savings schemes, which are similar to equity-linked savings schemes, can be a good conduit for retail investors if the government accepts the proposal by the Association of Mutual Funds in India (AMFI) to provide benefits under Section 80C of the Income Tax Act. This will provide retail investors with conservative or moderate risk appetites to funnel their savings into products, other than equity-oriented mutual funds.
Make InvITs more attractive
Infrastructure investment trusts (InvITs) also present investors with an able long-term investment avenue in an alternative asset class, such as infrastructure. The requirement of InvITs to allocate 80% of their portfolio in revenue-generating assets, along with distribution of minimum 90% of the profit to investors, provides comfort of regular income to investors, in addition to capital gains on account of change in price of units traded on the stock exchange. These also provide attractive regular income on investment; in fiscal 2021, income distribution from InvITs ranged 8.5-12.2%. The Securities Exchange Board of India’s (SEBI) decision in 2021 to reduce minimum subscription to Rs 10,000-15,000 from Rs 1 lakh, and the trading lot size to one unit from 100 units have made these instruments accessible to retail investors. However, for InvITs to become an optional retirement product, the government should consider tax sops to enhance their attractiveness for investors, which will, in turn, help channel long-term funds to infrastructure projects. Currently, income distribution from InvITs is taxed as per the personal income tax slab of the individual investor, while any sale within three years of the holding period is taxed as short-term capital gain of 15%, and beyond three years, long-term capital gains of 10% for gains exceeding Rs 1 lakh.
