Mutual funds hard sell debt when tax benefits end on March 31

MUMBAI: Mutual fund companies are attracting retail investors who are looking to take advantage of the long-term tax benefits in debt funds during the last few days of the fiscal year ending March 31. Last week, the government withdrew the indexing benefits for investors in mutual fund program hold less than 35% domestic equity in their portfolio. The new norms will apply from April 1, 2023.
According to industry players, demand for debt funds is led by high net worth individuals (HNIs) who expect annual returns of up to 7% after indexing and taxes. Such income, in any comparable product, can only be realized if the pre-tax profit is 10%. However, there is currently no product that can offer a low-risk 10% annual return, market participants say.

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Under the index, returns are calculated after adjusting for inflation and accrued benefits for those who have invested for more than three years. Gold and international equity programs are also affected by the Finance Bill amendments, as they are considered debt funds for taxation. For investments made after April 1, investors will be required to pay tax according to their income sheet upon acquisition.
Asset management companies (AMCs) are stepping up these plans before the end of the financial year, mutual fund distributors said. Some fund companies like Mirae Asset and Edelweiss have even opened their international funds for one-time investments despite regulatory restrictions.
As of February 2022, AMCs have been capped by the Sebi directive to limit outward investment at $7 billion. Currently, fund companies can only accept new funds to use whatever space is available in the limit due to share buybacks and sales as long as they do not breach the AUM (assets under management) day. February 1, 2022.

“These investors (HNIs) are locking their funds at these levels before the end of the financial year so they can enjoy the benefits of the investment,” said Gajendra Kothari, CEO of Etica Wealth, Gajendra Kothari. long-term taxes.” Not only HNI and ultra HNI invest in these funds, even some corporations that are sure they won’t need the money in the next three years are investing in these funds. Mutual fund distributors are also stepping up these debt programs before the financing closes, fund distributors said.
According to analysts, the aim behind the government’s move appears to be to reduce price disparities. “Companies and HNI are the main players in the debt segment. Firms invest to manage treasury, while HNI do so for tax advantages,” a report by broker Prabhudas Lilladher said. The report adds that while HNI flows may have some impact, their share in the assets and revenue of the funds is very small.
“The overall affected AUM forms barely account for 2-5% of revenue for AMCs… Investment funds can also benefit from these regulations as debt money can move to funds. mixed (where the total cost ratio, or TER, is higher) is charged,” a JM Financial report said.
However, some industry players say investors should not go overboard with these funds just to gain tax benefits. “Investors should research their portfolios and financial goals before over-diversifying,” said Kranthi Bathini of WealthMills Securities.


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