GST revamp in 2025: Certain mutual funds could see significant growth due to GST reforms in key sectors
Prime Minister Narendra Modi has announced a major GST overhaul, aiming to simplify the tax structure by reducing GST slabs from five to two main rates: 5% for essentials and 18% for most others, with a 40% special rate for sin/demerit goods [1]. This reform is expected to take place around Diwali this year and will cover key sectors, including cement, steel, consumer durables, and automobiles.
The GST rate on cement and construction materials is expected to be reduced from 28% to 18%, benefiting the infrastructure and housing sectors [2]. Mutual funds holding large cement companies will gain from improved margins and higher demand. Similarly, the GST rate on steel and manufacturing products is expected to see a reduction, which could benefit the steel industry and related sectors [2].
The GST rate on automobiles and auto-ancillaries is also expected to be reduced, potentially increasing demand. Mutual funds with significant exposure to auto, cement, steel, and consumer durables sectors, such as sectoral/thematic equity funds with a focus on automobiles and auto-ancillaries, funds with exposure to cement and construction materials, consumer durables-focused mutual funds, consumption-themed mutual funds, and diversified equity mutual funds with good exposure to these sectors, are the most likely to benefit from these GST rate cuts [1][2][3][4].
Key mutual funds that could benefit include equity mutual funds with a sectoral or thematic focus on automobiles and auto-ancillaries, such as funds holding stocks of companies like Maruti Suzuki, Tata Motors, Bajaj Auto, Hero MotoCorp, TVS Motor Company, Eicher Motors, Mahindra & Mahindra, and Escorts Kubota [3][5]. Similarly, funds with exposure to cement and construction materials, consumer durables manufacturers, and a mix of consumption-driven sector stocks are also expected to see improved returns in the medium to long term [1][2][4].
Experts suggest that diversified equity mutual funds with good exposure to these sectors are safer while capturing the GST benefit along with flexibility to reallocate across sectors, compared to narrow thematic funds [4]. Investors should watch upcoming GST Council decisions for final notifications and rate details, as these will solidify investment prospects [1][4].
In addition, the GST rate on consumer durables, such as electronics, kitchen appliances, ACs, and washing machines, is expected to be reduced, spurring demand. The GST rate on sanitary ware and tiles is also expected to be reduced from 18% [2]. These reductions could positively impact mutual funds with holdings in these sectors.
In summary, the GST rate cuts announced for the 2025 reforms could significantly boost the prospects of mutual funds with exposure to key sectors such as automobiles, cement, steel, and consumer durables.
| Fund Type | Beneficiary Sectors | Examples of Stocks Keywords | |-------------------------------|---------------------------------------------|-------------------------------------------------| | Sectoral/thematic equity funds | Automobiles, Auto-ancillaries | Maruti Suzuki, Tata Motors, Bajaj, Hero, TVS | | Sectoral/thematic equity funds | Cement and construction materials | Major cement companies | | Sectoral/thematic equity funds | Consumer durables (electronics, appliances) | Consumer durable manufacturers | | Consumption-themed mutual funds | Autos, FMCG, consumer durables, retail | Mix of consumption-driven sector stocks | | Diversified equity mutual funds | Broad exposure including GST-benefiting sectors | Large-cap diversified with good sector allocation |
[1] "GST rate cuts to boost returns for mutual funds invested in key sectors: Experts" - Business Today, [link] [2] "GST Council to cut tax rates on cement, steel, consumer durables" - The Economic Times, [link] [3] "GST rate cuts to boost demand and improve profit margins for automobile and cement companies, say experts" - Moneycontrol, [link] [4] "GST rate cuts to benefit mutual funds with exposure to key sectors" - Financial Express, [link] [5] "Tata Mutual Fund report suggests key mutual fund themes to benefit from GST relief" - Livemint, [link]
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