Key Points
From April 2023, the government made a move to scrap long-term capital gains tax and indexation benefits available to the debt mutual fund investors..
This offset is not available in other fixed income instruments where the nature of income is the marginal rate of taxation of the HNI.What this means is that debt mutual funds are now at interest income and not capital gain, says Unmesh Kulkarni Managing Director Senior Advisor, Julius Baer India...
Debt Mutual Funds continue to be convenient investment options, as they offer huge diversification benefits along with liquidity (withdrawal throughout the year).When investing in debt mutual funds, there is now no need for investors to stay invested for 3 years (unlike in the old regime, as indexation was available after 3 years)..
Now, as there is no tax benefit for holding longer, investors can redeem their debt mutual funds any time, if their investment objective is fulfilled.Existing investments in debt mutual funds (invested prior to 1 April 2023), however, are grandfathered, and investors continue to enjoy indexation benefits; so they might want to hold on to the investments assuming that the investment performance is satisfactory.Should investors move away from conventional debt instruments?..
The potential fall in yields will positively impact the prices of bonds and Debt Mutual Funds NAVs, and result in capital gain for investors, over and above the running yield of portfolios..
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