BANGALORE: Domestic fund managers are ecstatic over Finance Minister Arun Jaitley’s income tax deduction scheme for contributions to the New Pension Scheme under Section 80CCD.

The scheme, unlike the more popular Employee Provident Fund, lets people have the option of investing up to 50 percent of their equity in the domestic stock markets (In the form of bonds, stocks and securities). The scheme is voluntary, and is designed to offer benefits to both investors and the invested.

Most experts, like Prashashta Seth of IIFL, a domestic brokerage firm, believe that the scheme will help to stabilize volatility in the Indian stock exchanges, BSE Sensex, and NSE Nifty. The Mumbai and Delhi based exchanges have seen gains over 50 percent since a low in September of 2013, but the rise has mostly been on account of huge inflows from foreign investors.  India has a net investment of $51.6 billion in the form of debt and shares from the beginning of 2014.

While foreign investment is good for short term cash flow in domestic companies, it is particularly prone to being withdrawn at the slightest hint of a market fluctuation, which leaves many firms in precarious positions.

Having more domestic investors in the stock market will help reduce volatility and stabilize the exchanges.

S.V. Prasad, an analyst with Chime Consulting, says that, "this is a huge trigger for domestic stock markets. Look at how the US stock markets took off from 1980s on the back of 401(k) money. It's that kind of moment this government has announced."

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