Sunday, June 23, 2024

Debt MF tax: Fund houses woo investors for one last week


Even as just a few asset management companies (AMCs) have officially reacted to the surprise tax setback for the popular hybrid debt mutual funds category, which was brought in through amendments to the Finance Bill passed on Friday, some AMCs are urging their clients to make the most of one final week’s window by investing more into such funds before March 31. 

As per changes introduced to the tax laws that will kick in on April 1, debt mutual funds with up to 35% of the portfolio invested in domestic equities, will no longer enjoy indexation benefits for tax purposes, even if held for more than three years. Capital gains from debt funds, international funds and gold funds, irrespective of their holding period, will be taxed at an individual’s applicable tax rate as short-term capital gains. 

“With this change, debt funds and traditional investments will now see parity in taxation,” Axis AMC, which manages Axis Mutual Fund schemes, said in a statement on Saturday, before stressing that existing investments and those made on or before the end of March will not be affected by the tax tweaks. “The comparison between such opportunities will rest largely on performance,” it added. 

“One caveat for existing investors through this news flow remains, that of existing investments in debt funds, international funds and gold funds, and even new investments made in them until March 31… will continue to attract long-term capital gains taxation once they complete three years. Investors could revisit their portfolio and reallocate funds towards debt and global funds to optimise their portfolios,” the AMC said.  

PPFAS Asset Management, which manages the Parag Parikh Conservative Hybrid Fund that predominantly invests in debt to generate regular income, while offering its investors long term capital appreciation from equity investments, made a more straightforward pitch to investors in a late Friday communique.  

“Given that, all investments undertaken before March 31, 2023, will continue to enjoy LTCG and Indexation benefits, we suggest you undertake your investment such that the allotment process is completed by March 31, 2023… which in turn will lead you being able to avail of the current regime of 20% capital gains tax after availing of the indexation benefit,” it said. 

“Existing investments should also be retained as long as possible as they will continue to enjoy the current, concessional long term capital gains tax rate,” the fund house added.  

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