Debt mutual funds (MFs) witnessed Rs 31,708 crore inflows from March 27 to March 31, Value Research data showed. Target maturity funds (TMFs) saw Rs 13,361 crore of inflows, while corporate bond funds witnessed inflows of Rs 9,526 crore in the said period. On the other hand, banking and PSU funds saw Rs 3,347 crore of inflows. Meanwhile, dynamic bond funds and gilt funds saw inflows of Rs 2,886 crore and Rs 2,608 crore of inflows respectively.
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This comes in the wake of Finance Bill amendment that said to classify capital gains arising from debt mutual funds as only short-term capital gains. The government said that investment in mutual fund where not more than 35 percent is invested in equity shares of Indian company (which is debt funds) will be deemed as short-term capital gains.
The announcement was done on March 24 and the provision became effective from April 1. In order to take benefits of the low long term capital tax (LTCG) regime, investors were seen purchasing these funds in the last week of March, experts said.
Mutual Fund sources said that inflows into debt funds since Finance Bill was passed is close to Rs 50,000 crore.
Association of Mutual Funds in India (AMFI) data showed over 3 year tenor debt MFs saw biggest inflows.
Before the new provision was passed, debt mutual funds were treated as long-term investments if held for more than 3 years and taxed at the rate of 20 percent along with indexation benefits or 10 percent without indexation. Those with a holding period of less than 3 years were taxed according to their tax slab.
With the changes, investments in debt mutual funds are now being taxed as short-term capital gains only. Indexation benefit and tax at a 20 percent rate have also gone away.
Any profit or gain that arises from the sale of a ‘capital asset’ comes under the category ‘income from capital gains’, and hence individuals need to pay tax for that amount in the year in which the transfer of the capital asset takes place. This is called capital gains tax.
First Published: Apr 4, 2023 5:09 PM IST
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