The mutual fund industry has outlined its wishlist for Union Budget 2026, seeking earlier tax rates on capital gains, restoration of long-term indexation benefits for debt mutual funds, and permission for mutual funds to launch pension-oriented MF schemes (MFLRS) with tax treatment aligned to the NPS.
Sandeep Bagla, CEO of TRUST Mutual Fund, said that he expects stability in taxes, especially around capital gains and pass-through taxation, to help investors plan investment diversification. He added that there could be a reintroduction of tax benefits for fixed income funds, with the caveat of segregation of benefits between actively and passively managed funds.
Nimesh Chandan, Chief Investment Officer, Bajaj Finserv Asset Management, said that this Budget comes at a very crucial juncture as far as markets are concerned and most investors will look to the Budget for how it handles fiscal prudence while supporting sectors affected by US tariffs.
The CIO of Bajaj Finserv AMC also said that the most important area to watch will be the steps the Finance Minister takes to attract durable FDI and FPI flows into the economy. While consumption is showing signs of a pick-up, incentives to encourage private capex remain one of the important expectations. The Budget is also expected to continue its focus on government capex and spending on defence.
The Association of Mutual Funds in India (AMFI), in its 27-point proposal for Union Budget FY 2026-27, proposed providing a separate deduction for investment in ELSS under the new tax regime and restoration of the long-term indexation benefit for debt schemes, which was withdrawn in Budget 2024.
Post the indexation benefit withdrawal in 2024, debt funds have delivered up to 14.23% since February 1, 2024, and since then the lowest return offered by a debt fund was 4.15%. On the other hand, since the last Budget announcement made in 2025, debt funds have offered up to 20.38%, while the lowest return offered was 0.93%.
Providing a separate deduction for investment in ELSS under the new tax regime will preserve ELSS as a simple, low-ticket equity entry vehicle and sustain retail participation in equities.
AMFI has also proposed that all mutual funds should be allowed to launch pension-oriented MF schemes (MFLRS) with uniform tax treatment.
In contrast to AMFI proposing restoration of earlier tax rates on capital gains, Shridatta Bhandwaldar, CIO Equities, Canara Robeco AMC, said that most sector-specific taxation tweaks, such as those related to life insurance, have already been addressed. He added that changes to mutual fund taxation appear unlikely, as past hikes hurt sentiment without meaningfully boosting revenues.
Fixed income perspective
On the fixed income front, Basant Bafna, Head Fixed Income, Mirae Asset Investment Managers (India), said that given the upcoming Budget is expected to maintain its long-term emphasis on fiscal consolidation alongside growth, the outlook for fixed income remains steady.
He further said that with the government’s commitment to balancing expenditure with debt reduction, there is little indication of any abrupt policy shift that would warrant portfolio adjustments. From this perspective, investors need not make significant changes to their debt holdings ahead of the Union Budget, as the broader trajectory of consolidation and growth remains intact.
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Some other experts shared what the mutual fund industry expects from the Finance Minister in the Union Budget 2026. Here are the expectations:
Anand K Rathi, Co-Founder, MIRA Money
As we approach the Budget, the mutual fund industry’s biggest expectation is clarity on capital gains taxes. If the government genuinely wants to promote long-term investing, it should consider increasing the long-term holding period from one year to two years and simultaneously reducing long-term capital gains tax to 0%. Short-term capital gains can remain unchanged or even be increased. Rewarding disciplined, long-horizon investors will deepen financialisation meaningfully.
Rathi further listed two other expectations, which include addressing continued foreign portfolio investor exits and encouraging retirement-focused investing. Over the last year, retail investors have effectively been funding FPI outflows. Stable foreign participation is essential for market depth, valuation credibility, and lower volatility. As India’s demographics mature, mutual funds must become a popular retirement vehicle, so introducing tax breaks for retirees or providing preferential tax treatment for systematic withdrawals could help build a more stable retirement income structure.
Abhishek Bhilwaria, BhilwariaMF, an AMFI-registered MFD
Ahead of the Union Budget 2026-27, the mutual fund industry is looking for policy stability and rationalisation rather than sweeping changes. Restoring indexation benefits for debt funds, enhancing long-term capital gains exemption limits for equity investments, and creating parity between mutual fund retirement products and NPS can go a long way in encouraging long-term investing.
Bhilwaria further added that simplifying tax rules and providing predictable taxation will help rebuild investor confidence, support household financial savings, and deepen capital markets while aligning with the government’s broader fiscal and growth priorities.
Jashan Arora, Director, Master Trust Group
As Budget 2026 approaches, expectations are centred on measures that deepen retail participation and reinforce long-term investing through mutual funds. Policy support for systematic investing, retirement-oriented products, and simplified asset allocation solutions could encourage investors to remain invested across market cycles.
Arora further said that greater tax clarity and incentives for long-term holdings would strengthen disciplined investment behaviour. Structural initiatives such as digital onboarding, enhanced financial literacy, and support for last-mile distribution can help expand mutual fund penetration beyond metro centres.
Swapnil Aggarwal, Director, VSRK Capital
Expectations from the Union Budget 2026 are focused on rationalising taxation to strengthen retail participation and promote long-term investing through mutual funds. Any further tax incentives could positively impact systematic investing and retirement-focused products by increasing SIP participation and encouraging longer investment horizons.
Aggarwal further said that stable taxation policies, along with continued investor education and initiatives targeting smaller cities, can boost investor confidence, expand mutual fund penetration beyond metros, and support innovation in long-term and asset allocation-oriented mutual fund products.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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