Last month in a financial year is usually hectic for all enterprises. So is the case for Indian wealth management industry. e.g. It is a good time for us to review the year gone by with respect to client portfolios tilts, performance contribution analysis, fund managers sticking to OUR plans, updating our outlook through the lens of economic data and any advisable last minute portfolio tax action before the financial year ends.
It is also a good time to plan the portfolio and tax tactics for the coming year.
Come March 2018, a unique additional confluence of regulatory ripples and tax changes will be added to the above activities.
- Regulatory ripples — SEBI has (re) defined the investment universe category boundaries and also limited the categories for Mutual Funds in India. As per SEBI circular dates, this will need to be effected by Feb ’18 end.
The first level impact of this will be causing Mutual Fund houses to merge / close / rename / change the fund portfolios to bring it in line with SEBI definition.
The second level impact of this will be that client portfolios may undergo a change / deviation with respect to the desired portfolio construct. e.g. A client may need, and have, an equity portfolio with 65% in large-cap companies. However, post implementation of SEBI order, the emerging client portfolio may have a reduced allocation with only 40% left in large-cap equities. This will need a review and re-alignment of the portfolio funds to bring it back to the desired shape.
Ideally, fund houses will allow investors to carry out these re-adjustments without having to pay the exit loads, if applicable. This looks to be the case so far for the Mutual Fund houses who have announced their rejigs. DSP BlackRock
2. Tax changes — Feb 2018 saw a historic change in the way equity investors will be taxed in India. After more than a decade of enjoying 0% tax on long-term gains on equity, the tax rate has been hiked to 10% of the long-term gains.
For a wealth professional, the catch is with the date of applicability. Although, the announcement was made on 1st Feb 2018, the tax exemption continues till March ’18.
Hence, for example, we will be reviewing the status of all equity investments done till March ’17 (one year before the date of applicability threshold). This may lead to a situation where we may book all long-term equity profits in March ’18. It is also possible that there may be a long-term loss. Again it may be advisable to book it too. But in April ’18. That will allows us to book capital losses, which are further allowed to be set-off against other capital gains (which is not the case if the losses are booked in March itself!).
For our firm there is even more on the anvil! We are trying to figure out the possible regulatory stance with respect to the advisory business model in India. And then working on restructuring the organisation structure and work flows around it.
For us it’s a long ‘march’ ahead.