More Retail Participation Is Needed in Indian Equity Market
The Indian financial services industry has witnessed a flurry of regulatory changes over the course of the last 12 months. At the heart of these changes is the single objective of enhancing retail investors’ participation in the capital markets, either directly or indirectly, by reducing costs, expanding reach, increasing accountability of manufacturers and advisers and ultimately increasing customer value proposition.
To begin with, the revised Direct Taxes Code (DTC) Bill will play a vital role in encouraging retail investment in the stock market by allowing tax exemption on long-term capital gains on the sale of listed shares. The individuals who fall in the 10% and 20% tax brackets will gain from low short-term capital gain tax (5% and 10%, respectively, against the current 15%). This will have a long-term positive impact on equity market volumes and depth. The changes in personal tax slabs will augment the disposable income by about Rs 15,000 crore in the hand of 30 million individual taxpayers, boosting savings and investments.
Unit-linked insurance plans in their new avatar have become more attractive. The proposal of having a separate sub-limit for a tax deduction of Rs 50,000 on life and health insurance premium in the DTC will also boost insurance penetration levels. Further, ban on entry loads on mutual funds and their listing on stock exchanges has served the dual purpose of increasing affordability and enhancing reach. Indian stock exchanges have over 200,000 terminals over 1,500 towns with a network of at least 17,000 brokers and 74,000 sub-brokers—a reach which no single entity can aspire to build. Enhancing use of stock exchange in the distribution of financial products will expand the reach and increase ease of buying and selling, encouraging higher retail participation.
The proposal to allow mobile trading is an equally important development. We have seen the success of online trading in India. Its share of trading on the National Stock
To begin with, the revised Direct Taxes Code (DTC) Bill will play a vital role in encouraging retail investment in the stock market by allowing tax exemption on long-term capital gains on the sale of listed shares. The individuals who fall in the 10% and 20% tax brackets will gain from low short-term capital gain tax (5% and 10%, respectively, against the current 15%). This will have a long-term positive impact on equity market volumes and depth. The changes in personal tax slabs will augment the disposable income by about Rs 15,000 crore in the hand of 30 million individual taxpayers, boosting savings and investments.
Unit-linked insurance plans in their new avatar have become more attractive. The proposal of having a separate sub-limit for a tax deduction of Rs 50,000 on life and health insurance premium in the DTC will also boost insurance penetration levels. Further, ban on entry loads on mutual funds and their listing on stock exchanges has served the dual purpose of increasing affordability and enhancing reach. Indian stock exchanges have over 200,000 terminals over 1,500 towns with a network of at least 17,000 brokers and 74,000 sub-brokers—a reach which no single entity can aspire to build. Enhancing use of stock exchange in the distribution of financial products will expand the reach and increase ease of buying and selling, encouraging higher retail participation.
The proposal to allow mobile trading is an equally important development. We have seen the success of online trading in India. Its share of trading on the National Stock