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Govt deals tax blow to debt mutual funds, AMC stocks under pressure

The government has proposed tax gains from debt mutual funds at the investor’s slab rate, regardless of investment period, in order to eliminate the tax advantage enjoyed by debt mutual funds on bank fixed deposits.


Early trade revealed selling pressure on shares of Asset Management Companies (AMCs). At 9.15 a.m., HDFC AMC was down about 4% in trading. Both Aditya Birla Sun Life AMC and UTI AMC experienced decreases of approximately 2%. The stock Nippon AMC was trading down 1%.

Tax Currently,

Investments in debt funds that last longer than three years are subject to the long-term capital gains tax (LTCG). This implies that the addition is charged at 20% with indexation benefits. Transient increases charge (STCG) is required on speculations held for under three years and the financial backer needs to pay charge according to his piece rate.


The investment will be taxed as STCG for the entire tenure if the Finance Bill’s proposed amendment is approved. This infers that all acquires will be charged at the section pace of the financial backer and there will be no indexation benefit. This is in line with how bank FDs are taxed.


Additionally, the amendment proposes eliminating LTCG taxation for international funds and gold ETFs, whose current tax structure is comparable to that of debt schemes.


The tax advantage of debt mutual funds (MFs) proved to be a major draw for investors in higher tax brackets due to the fact that the returns of bank FDs and debt funds are frequently comparable.


The MF industry is concerned about the move.


“I hope that the Finance Bill’s change to eliminate LTCG with indexation status on debt funds will be looked at. India is currently experiencing financialization, and a robust debt MF ecosystem is necessary for a thriving corporate bond market. Radhika Gupta, managing director and chief executive officer of Edelweiss MF, stated, “The beginning of a lot of innovation in the bond category was the success of programs like Bharat Bond and Targeted Maturity Funds last year.”


Over Rs 13 trillion in debt schemes are managed by the industry, or 32% of all assets managed.


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