Finance Bill 2023 has proposed major changes to debt mutual funds, which relates to exclusion of long-term capital gains and indexation benefit. The proposal will be applicable to investments made on or after April 1, 2023. Experts, however, feel that the amendments will bring bank fixed deposits (FDs) on-par with debt mutual funds.
At present, debt fund investors enjoy tax advantage over FDs. Indexation benefit was one of the key advantages of investing in debt funds. This is set to go, experts opine.
Understanding the proposals
The investments in mutual fund where not more than 35 percent is invested in equity shares of Indian company i.e. debt funds, will now be considered to be short-term capital gains. Also, as per the proposal debt funds held for more than three years will no longer enjoy indexation benefit. Additionally, they won't be eligible for a 20 percent tax rate.
The impact
In an interview with CNBC-TV18, Radhika Gupta, MD and CEO at Edelweiss AMC said that this will impact gold, international funds, and funds of funds.
She said, “This comes as a surprise and it has a very adverse effect, not only on debt mutual funds but also on some other categories of mutual funds, gold mutual funds, international mutual funds, fund of funds. So, the impact is not small and it's wide-ranging.”
This news is concerning for investors who have invested their money in these types of funds.
Gupta expressed her hope that the decision will be re-evaluated in the future, as the effects of this decision may be far-reaching.
"Debt mutual funds, on the other hand, have been able to channel a significant amount of money into the bond market. This has been particularly important in India, where the bond market's liquidity has been a concern for a long time. This decision could potentially lead to a migration of money from debt mutual funds to fixed deposits (FDs), which could have a negative impact on the bond market," Gupta told CNBC-TV18.
However, this decision will only impact long-term investments in debt funds. Nevertheless, the concern is warranted, as this decision could have a significant impact on the mutual fund industry.
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For more details, watch the accompanying video
(Edited by : Anshul)
First Published: Mar 24, 2023 10:21 AM IST
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