With a BE in Industrial Engg. and a PGDBM in IIM (B), Mr. R. Sukumar was the Head of Research (1990-94) in the Indian Opportunities Fund jointly managed by Martin Currie and Indbank before shifting to Pioneer ITI Mutual Fund. Currently, he is the Vice President (Investments) and Fund Manager at Pioneer ITI. He manages Prima Plus, Infotech Fund, Internet Opportunities Fund, Pharma Fund, Pension Plan, Index Fund, PE Ratio Fund and Taxshield 97.
In an interview to Personalfn, he voiced his opinion on the budget, its impact on the mutual fund industry, issues he felt the finance minister should have tackled and the post-budget impact across sectors and companies.
PFN: Very briefly, what is your view on the budget?
Mr. Sukumar: Overall, the budget has been positive with the government taking some hard decisions in terms of :
On the other hand, we view the taxation on dividends to be a negative move as the possibility of any major revenue generation is unlikely and the move is likely to result in a messy situation with regard to the collections/accounting of this tax revenue if any.
- Cutting subsidies
- Linking rates to government securities
- Rationalization of tax reforms with the cut in customs/excise duty
PFN: In your view what will be the most likely impact of the move to tax dividends in the hands of investors. Do you see interest in mutual funds declining in favour of other instruments like bank FDs?
Mr. Sukumar: We view the move to be a major irritant for investors. As far as mutual funds are concerned, this move will be a short-term problem and in the medium to long term mutual funds will continue to offer investors an attractive investment avenue
PFN: The domestic mutual fund industry was looking at some growth drivers from the budget to improve inflows. However, this has not happened. Where do you see the industry going from here?
Mr. Sukumar: We are confident of the inherent strengths of the industry like good performance combined with liquidity and convenience will continue to ensure steady investor interest in mutual funds. The tax breaks were just one of the reasons, which made mutual funds an attractive investment option.
Moreover, as rates of small savings rates are cut and linked to market benchmarks and cap on investment in securities like RBI Relief bonds will narrow the options available for the Indian investor and should result in additional flows into the industry
PFN: What is your advise to the retail investor at this point of time, especially those who will be hit the move to tax dividends (i.e. who have been investing in dividend plans of mutual funds)?
Mr. Sukumar: We believe that it will be the corporate investors who are more likely to be hit by taxation on dividends and retail investors with a medium to long term perspective have nothing much to worry. They can move into the growth options of the schemes, which will still prove to be tax-efficient compared to traditional fixed income investments for a period of more than one year. The message from the government seems to be that investors should not look for encouragement in terms of tax incentives for investing rather they should do it on their own personal considerations. As we all know, if one wants to beat inflation, equities are the best bet over the long term and the moves in the budget could help create inflows into the equity markets over time.
PFN: What other issues would you have liked the finance minister to address in his budget, with particular regard to mutual funds?
Mr. Sukumar: We were expecting growth drivers in the form of defined contribution (as in the US) and allowing pension funds to invest in mutual funds, which would result in an increase in the risk capital in the system. The budget could have also given more freedom to fund managers in terms of investing in overseas securities, which would help them to diversify and hedge their portfolios against volatility.
PFN: Post-budget, what sectors and companies look attractive to you?
Mr. Sukumar: Our view is that as far as the long-term fundamentals of various sectors are concerned, the budget was a non-event (with marginal short-term impact) as it should have been. It was only the sentiment, which seemed to have been affected. Investments in infrastructure could revive demand and help in creating a better investment climate for FDIs, and a revival in economy will help quality companies across sectors.