Assets Under Management AUM

Budget 2022: it is time to continue the momentum of equity participation

A revolution is underway in the stock markets. According to the latest BSE data, there are currently nine crore investor accounts. Demat accounts have more than tripled in the past 24-36 months. However, the overall stock penetration is still only 5-6% of the Indian population. The average in developed countries is over 50%.

The 2022-2023 Union budget must build on the momentum of recent years. More people need to benefit from their participation in stock markets. The government should consider all possible means to encourage ordinary citizens of India to invest directly or indirectly in the stock markets.

exchange traded funds

Index investing created a revolution in the United States in the 1970s. Although there was widespread publicity about benchmarks like Sensex or Nifty, an average Joe in India must benefit from the quality financial performance of best indian companies. According to data from NSE, between March and December 2021, total assets under management (AUM) of ETFs increased by almost 40% in India to reach Rs 4,02,601 crore. The study also indicates that during the same period, there was an increase of more than 18% in the total number of ETFs to 122.

Looking at the trend, encourage more participation in the index or exchange-traded funds. The government can promote long-term savings in Nifty or Sensex ETFs by offering lock-in and tax incentives modeled on equity-linked tax savings plans. Greater allocation of provident funds and state-owned pension funds to stock markets could also help.

Incentives for new-age fintechs

New-age fintechs are going where traditional banks, non-banking financial firms or securities houses cannot. The government should consider a set of incentives to enroll those who would otherwise be ignored. This would provide an additional impetus to broaden the scope of financial inclusion. Companies need to invest heavily in creating and marketing meaningful investor education content. They would need tax incentives or financial support to further expand the reach of investor education. Bringing more people into the financial system by channeling household savings into regular investments could do wonders for the economy. There is already a precedent for index investing benefiting average US household wealth. India should seek to follow this example.

Policies for local startups

Recently, PM Modi, while interacting with over 150 startups as part of Azadi ka Amrit Mahotsav, said that January 16 will be celebrated as the “National Startup Day” because startups are the backbone of business. ‘India. We have seen an increase in the number of tech startups that have gone public or plan to go public in the future. In the last budget session, the government introduced a slew of incentives for startups. Also this year, the government may consider more policies favoring these local startups and making them even more conducive to run businesses in India.

Tax on securities transactions

The government could consider exempting traders from tax on stock market transactions. This would encourage new investors to try trading on the stock exchange. The government has made it clear to investors that India is not a tax haven and all income is taxable. Capital gains tax is already an established standard. Dividend tax also taxes the distribution of profits appropriately. A Securities Transaction Tax or STT discourages traders from trading. A robust financial market requires both investors and traders. Also, the revenue from the STT is not as large as that from the short-term or long-term capital gains tax and the dividend tax. The government might consider getting rid of it.

The budget offers a unique opportunity to broaden the reach of financial inclusion. A broader investor base could lead to a robust retail market in India. We have already seen the impact of regular inflows of stocks into mutual funds on the stock market. The presence of more people in the financial system would make the retail market an attractive proposition for companies to target for raising equity or debt capital. With the much talked about IPO of LIC, there will likely be a huge spike in demat counts as the largest insurance player in the country already has about 25 crore policyholders increasing the 2x potential market size.

The stock market is an engine of economic growth. After two tumultuous years, the Indian economy is likely to once again be the fastest growing major economy in the world, according to most productions. Getting more people to participate will only support future growth.