Tax concessions on debt funds only a minor relief: MFs

The mutual fund industry on Friday termed Finance Minister Arun Jaitely’s clarification on the long-term capital gains tax for debt mutual funds only a minor relief. The Minister said the long-term capital gain tax of 20 per cent would not be imposed on units redeemed between April 1 and July 10.

Though the move safeguards the interest of investors who have redeemed before the Budget, it does not address the concern of people who have invested in the scheme before the Budget.

Nilesh Sathe, Director and CEO, LIC Nomura MF, said the Jaitley’s statement in the Lok Sabha has cleared the uncertainty prevailing in the industry after the Budget.

However, in the coming days, it would be difficult for the industry to devise an attractive fixed maturity product for three years, as there are no instruments in the debt market that provide commensurate yield, he added.

Mutual fund organisations and investors apprised the capital market regulator SEBI and the Association of Mutual Funds in India of their concern over the Budget proposal. Following this, Jaitley said on Friday the higher tax rate of 20 per cent on the debt mutual fund would apply from July 10, the date of the presentation of the Budget, and not from April 1 as proposed earlier. He said the Government would not retrospectively tax debt fund investors.

In a bid to bring parity with banks and other debt instruments and stop tax arbitrage, the Finance Minister increased the long-term capital gains tax on debt-funds to 20 per cent from 10 per cent and also enhanced the long-term time frame to three years from one year.

G Pradeepkumar, CEO, Union KBC, said Jaitley’s clarification was a relief for investors who have redeemed, but investors who have put in money between April 1 and July 10 in fixed maturity plans were left high and dry.

“People plan their investments considering a fixed tax regime, and if the tax treatment is changed in between it is a cause of concern,” he said.