Fund managers had no choice but to keep buying same shares at higher levels simply because more money was being brought into mutual funds.
In her first budget as Finance Minister, Mrs. Nirmala Seetharaman has delivered three very important and landmark openings to the mutual fund Industry.
By simply allowing Aadhaar card to be used instead of PAN card, she has opened the gates for deep penetration for a mutual fund player like Mahindra, which focuses on smaller markets and small investors. With only PAN card to be used for proving KYC, we had a limitation on how many potential new investors we could approach, particularly in smaller markets. However, with over 123 crores Aadhaar cards in use, the universe has expanded manifold. For us this is great news! We can now look to open a mutual fund account for almost every Indian.
Secondly, all through the sharp rise of the equity mutual fund AUM during 2016-18, we saw a challenge in the equity market where valuations were getting stretched simply due to lack of availability of supply of more investment opportunities. Fund managers had no choice but to keep buying same shares at higher levels simply because more money was being brought into mutual funds.
Now with the move towards 35 per cent public float in listed companies, more shares will be available in good quality companies for mutual fund managers to buy. Almost Rs 4,00,000 crore worth of additional supply of equities is likely to be available to invest in, as a result of this change. This is great news for mutual fund managers, because we can look to deploy more money into equity markets at reasonable valuations, thus improving the probability of making a better return for our investors.
nLastly, the Finance Minister referred to the possibility of according an ELSS type of benefit to Exchange Traded Funds, which in our view will give a tremendous incentive to small investors to bring investments into equity markets. Under the ELSS scheme, an investor gets Income Tax Section 80C benefits for the corpus invested in the scheme for a period of three years at least.
Of course, we would be also very happy if a similar tax benefit could be extended to designate debt schemes.