Ahead of Budget 2026, mutual fund industry seeks policy stability over big-bang changes

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.

"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.

"I expect a pro-growth budget. If continuity is maintained from previous budgets, markets should be well positioned to generate better returns. Overall, the coming period should look positive from a market perspective," said Sailesh Jain, fund manager of Tata Arbitrage Fund.

"We expect a continued emphasis on fiscal consolidation paired with aggressive capital expenditure. Since several tax-related tweaks have already been announced during the last year, there is likely not going to be much on that front. Thus, our expectations focus on sustained support for infrastructure development, rural economy revival, and incentives for the manufacturing sector to bolster the Make in India initiative," said Ankit Jain, Sr. Fund Manager, Mirae Asset Investment Managers (India).

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

• 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.

• 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.