Mutual fund stocks were battered after the Finance Bill 2023 amendment wiped out the tax advantage on debt funds, gold, international and fund of fund. The move may result in redemption of about ₹50,000 crore in the short-term before the decision kicks in from April 1.
Shares of HDFC AMC and Aditya Birla Sun Life AMC dropped four per cent each to ₹1,671 and ₹340, while Nippon Life India AMC was down one per cent at ₹206. UTI AMC dipped five per cent to ₹658.
As per new regulations, mutual fund schemes which do not invest a minimum 35 per cent in equity shares of domestic companies will be taxed as short-term capital gains at applicable tax rates.
A Balasubramanian, Chairman, Association of Mutual Funds in India and Managing Director, Aditya Birla Sun Life AMC, told businessline that the move will have major impact on international funds, gold, and fund-of-funds.
Investors should not rush to redeem their investment before the end of this fiscal as they stand to lose out on future gains and tax benefit. Investors in debt mutual funds can hold their investment for a longer term and reap the benefit of accrual since the tax will kick-in only at the time of redemption, he added.
For investments made till March 31 in debt funds, international funds and gold funds will not be affected by the proposed amendments. It will continue to attract long-term capital gains taxation after the completion of three years.
Not much impact
DP Singh, Deputy MD, SBI MF, said while the overall ecosystem will get impacted, taxation is not the only part to be considered while evaluating debt funds.
Since the overall penetration of debt funds is currently not very high, the impact may not be much and there are many opportunities even with such developments, he added.
Srikanth Subramanian, CEO, Kotak Cherry, said there will be renewed retail interest in corporate bond market and this will also add depth to the liquidity which will mean better pricing for the end customer.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said this a blow to debt market as more money will move to bank FDs and Sovereign Gold Bonds. The biggest gainer will be the exchequer with increasing tax revenue, he added.
Gautam Kalia, Senior VP at Sharekhan by BNP Paribas, said with the tax arbitrage gone, retail investors will prefer fixed deposits to debt funds. They might as well stick to Hybrid or Equity schemes for their riskier allocations, he said.