LTCG tax on mutual fund returns will prove a ‘dampener’ in the short term: Zerodha

Shobha Roy Kolkata | Updated on February 09, 2018

Currently, investors paid zero LTCG tax on investments in equity mutual funds held by them for more than a year.

However, won’t deter inflows into the industry in the longer term

The Budget proposal of levying 10 per cent long-term capital gains (LTCG) tax on gains made above ₹1 lakh a year from equity mutual funds will act as a ‘dampener’ in the short term. The move will, however, not deter investments flowing into equity mutual funds in the long term, said Karthik Rangappa, Vice-President —Research & Educational Services, Zerodha.

Currently, investors paid zero LTCG tax on investments in equity mutual funds held by them for more than a year.

“The levy of LTCG will act as a dampener on investor sentiment in the short term. However, in the long term, investments will continue to flow into equity mutual funds,” Rangappa told BusinessLine on the sidelines of a press conference here on Thursday.

When it comes to investments in mutual funds, India is an under-served market with only 6-7 per cent of total savings flowing into mutual funds, compared with close to 50 per cent in the West.

However, there has been a sharp spike in investment flows into mutual funds post demonetisation which was announced in November 2016.

In calendar year 2017, total inflows into mutual funds stood at close to ₹2.78 lakh crore, of which nearly ₹1.78 lakh crore came from equity mutual funds.

According to Association of Mutual Funds in India (AMFI) data, the total number of SIP accounts as on date stands at close to 1.8 crore. Of this, nearly 72.4 lakh SIP accounts (9.05 lakh SIP accounts on an average each month) were added during the eight-month period between April-November 2017. The average investment per SIP account was close to ₹3,250, the data showed.

Growing client base

“There has been a major shift in investment pattern post demonetisation. The interest rates having declined, inflows into equities have increased. The next five-to-ten years are going to be very interesting for the mutual fund industry,” he said. Zerodha, which is a discount brokerage firm, expects its client base to increase to 10 lakh from the present base of six lakh customers in the next two years.

According to Rangappa, its direct mutual fund and equity platform — Coin, which allows customers to buy mutual funds online directly from asset management companies, has witnessed good traction.

“We have been able to channelise investments to the tune of ₹1,000 crore directly from customers through the Coin platform,” he said.

Published on February 08, 2018

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