Budget 2018: The Debt Markets

New Instruments

Both SEBI and RBI will request larger companies to finance 25% of their borrowings from the market. Bond issues for the bank recapitalization, affordable housing, NHAI’s infrastructure projects can be expected. The government has indicated that a debt ETF will be launched similar to what was done for the Bharat 22 ETF in the equity space.

The exempt income from interest for senior citizens has been increased from Rs. 10,000 to Rs. 50,000. In addition, TDS on deposits has been removed. This effectively makes fixed, recurring, and post office deposits more attractive for senior citizens.Rising yields, interest rate hikes, and better monetary transmission are likely to improve returns for all debt investors.

LTCG on equity instruments has been reintroduced. Equity as an investment avenue has lost some lustre. Dividends from equity are no longer exempt from tax. This means dividend income from balanced and equity mutual funds are taxable. As optimism in equity markets moderates and there is parity in the taxation of debt and equity instruments, there might be a reversal of flows.