Mutual funds ask investors to put money in debt, international funds before April 1

Mutual Fund houses are pushing their debt funds and international funds before the taxation changes comes into effect from April 1. Industry sources suggest that many big mutual fund houses have been calling HNI investors to lock their money in debt funds for a longer time frame. Over the weekend after the Finance Bill introduced amendments, fund houses reached out to retail investors via email communication asking them to invest before the new taxation kicks in for debt funds.

Apart from debt funds, mutual funds are also looking at increasing the international AUM before April 1.

Industry sources told CNBC-TV18 that many top mutual fund houses called high net-worth individuals to explain the lucrativeness of parking money in debt funds before April 1 for a long term.

Mutual Fund houses including Axis MF and ABSL MF sent emails to their unitholders to increase allocation in debt mutual funds to take advantage of indexation benefit before the new taxation policy comes into effect from April 1. From next month, capital gains arising from investments in debt mutual fund schemes will be added to taxable income and taxed in line with the income tax slab rate. The government made this change as part of amendments in the Finance Bill last week.

Edelweiss Mutual Fund, Mirae Asset and Franklin India Mutual Fund have re-opened their international funds for investors to lock in their money at the current taxation. In a notice, Edelweiss Mutual Fund said that they have opened seven of their international schemes including Funds that will re-open for lumpsum and switch in transactions in -Edelweiss ASEAN Equity Offshore Fund, US Tech Equity FOF, Greater China Equity FOF, Emerging Market Opportunities FOF, Europe Dynamic Offshore Equity, MSCI India Domestic & World Healthcare 45 Index Fund.

Mutual Fund CEOs including Radhika Gupta of Edelweiss Mutual Fund and Swarup Mohanty of Mirae Asset took to social media platforms and said that investors should take advantage of the prospective nature of the taxation change and lock in their money before the month ends. “If you are an investor in Bharat Bond 2023, you should go ahead with the merger of the fund. Your old rate of taxation will be grandfathered and you will also benefit from the indexation benefit,” said Radhika Gupta in a message to investors.

Chirag Mehta, CIO, Quantum Mutual Fund said, “Since this change comes into effect from the next financial year, between now and 1st April 2023 could be a good time for debt investors to allocate to debt category mutual funds to the extent required and thereby lock in the preferential tax treatment”.

Mehta added that while the tax advantage over bank fixed deposits has been done away with, debt mutual funds will still have an edge over bank fixed deposits when it comes to other aspects such as the benefit of deferred tax, liquidity, transparency, the potential for capital gains and market-linked interest rates which tend to be reflected in bank fixed deposit rates with a lag. He also said that it does not change the attractiveness of liquid funds for surplus funds vis a vis a bank savings account.