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Union Budget 2026 expectations for mutual fund investors

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By Sangeeta Ojha

3 min read | Updated on January 17, 2026, 07:45 IST

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SUMMARY

Ahead of Budget 2026, mutual fund investors are hoping for policy stability, predictable taxation and support for long-term debt funds. Here’s what experts expect.

budget 2026 mutual fund investors

Equity funds, which primarily invest in stocks, are taxed based on the holding period. | Image: Shutterstock

Ahead of Budget 2026, the mutual fund industry is hoping for steady policies rather than big changes. Experts say measures to support long-term debt funds and predictable taxation would boost investor confidence, while avoiding aggressive fiscal tightening would help keep the market stable.

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"Overall, the Government has already put in place most of the measures that are required to support growth through its focus on macroeconomic stability and low interest rates. A policy push to incentivise long-term debt mutual funds would be a welcome move," said Rajat Chandak, Senior Fund Manager, ICICI Prudential Mutual Fund.

“Our expectations from the Budget are limited. In recent years, it has tended to excite markets but rarely deliver major changes, as taxation and strategic decisions increasingly occur outside the Budget. Most sector-specific taxation tweaks such as those related to life insurance have already been addressed, while changes to mutual fund taxation appear unlikely, as past hikes hurt sentiment without meaningfully boosting revenues. We believe defence capex is likely to see an increase, given the current geopolitical environment," said Shridatta Bhandwaldar, CIO (Chief Investment Officer)– Equities, Canara Robeco Asset Management Company Limited.   "We hope the government avoids aggressive fiscal tightening. With weak demand, subdued private capex and stagnant household incomes, government spending remains critical. That said, divestment targets could be raised to compensate for lower tax collections. The last Budget marked a pivot towards consumption and revenue expenditure; this one should avoid any further tightening,” added Shridatta Bhandwaldar.
"I would hope to see a stable policy environment in the upcoming Budget, with an emphasis on continuity rather than frequent incremental changes. Such stability helps build long-term investor confidence," said Rohit Tandon, Senior Fund Manager, Kotak Mutual Fund.

Understanding taxes on mutual fund investments

When you sell or redeem mutual fund units for a profit, the earnings are called capital gains, and these are subject to taxation. How much tax you pay depends on the type of fund and how long you have held the investment.

Taxation on equity mutual funds

Equity funds, which primarily invest in stocks, are taxed based on the holding period:

  • Short-term (held for less than 1 year): Gains are taxed at 20%.

  • Long-term (held for 1 year or more): Gains above ₹1.25 lakh per financial year are taxed at 12.5%.

Certain equity funds, like Equity Linked Savings Schemes (ELSS), also offer tax deductions under Section 80C, making them a popular choice for investors looking to save on taxes while investing. This is applicable only under the old tax regime.

Taxation on debt mutual funds

Debt funds, which invest primarily in fixed-income securities, have different rules depending on when you purchased the units:

  • Units bought after 31 March 2023: All gains are considered short-term and taxed at your regular income tax slab, regardless of holding period.
Units bought before 1 April 2023:

  • Short-term (held less than 2 years): Gains are taxed at your applicable income tax slab.

  • Long-term (held 2 years or more): Gains taxed at 12.5%, without indexation benefits.

Securities Transaction Tax (STT)

On top of capital gains tax, the government levies a Securities Transaction Tax (STT) of 0.1% on the purchase and sale of equity mutual fund units or hybrid equity-oriented funds (funds with at least 65% equity exposure). Debt fund transactions are exempt from STT.

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About The Author

sangeeta-ojha.webp
Sangeeta Ojha is a business and finance journalist with vast experience across leading media platforms, including Mint and India Today. Passionate about personal finance, she has built a reputation for covering a wide range of PF topics—from income tax and mutual funds to insurance, savings, and investing.

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