AMC stocks take a hit on concerns of tax advantage for debt mutual funds
2 min read 24 Mar 2023, 12:57 PM ISTThe government is likely to make an amendment to the Finance Bill, 2023 and do away with the long-term capital gain tax benefit that debt mutual fund investors currently enjoy
PremiumShares of asset management companies (AMCs) slumped in Friday's trade as the Finance Ministry is likely to do away with the long-term capital gain tax benefit that debt mutual fund (MF) investors currently enjoy.
HDFC Asset Management Company slided 4.81 per cent to ₹1,659.95, while UTI Asset Management Company shed 3.92 per cent to trade at ₹663.65. Shares of Aditya Birla Sun Life were trading 2.57 per cent lower ar ₹346.75. Only Nippon Life India Asset Management was trading 0.55 per cent higher at ₹209.80.
Debt MFs are likely to be stripped of the long-term tax benefit if they invest less than 35 per cent of their assets in equities. Such mutual funds will attract short term capital gains tax.
The Finance Ministry is likely to bring in amendments to the Finance Bill, 2023 removing the long term capital gains tax (LTCG) benefits available to such specified MFs.
At present, such mutual fund schemes attract 20 per cent LTCG with indexation benefits.
Finance Bill 2023 passed in the LS
'The Finance Bill, 2023 ' tabled by Union Finance Minister Nirmala Sitharaman in Lok Sabha on Friday was passed in the lower house of the Pariament. The bill contains tax proposals for the fiscal year starting 1 April, 2023.
Industry experts said that this would not only impact investor flows into debt MFs, but also bond market as a whole. “Mutual funds offered liquidity in the domestic bond market, which is otherwise quite illiquid. Investor flows coming into debt MFs were deployed into the bond markets," said Niranjan Avasthi, head, product, marketing and digital business at Edelweiss Asset Management.
"I hope the proposed change in the Finance Bill to remove LTCG with indexation status on debt funds is reviewed. Financialization is just happening in India and a vibrant corporate bond market needs a strong debt MF ecosystem," said Radhika Gupta, managing director and chief executive officer at Edelweiss Asset Management Limited.
Once the amendments to Finance Bill 2023 gets Parliament nod, holders of MF schemes which invest up to 35 per cent of their assets in equity shares would be taxed as per their slab rates.
The proposal is likely to bring parity in taxation between a market-linked debenture and a MF which invests majority of its funds in debts.
Meanwhile, AUM of the mutual fund industry declined marginally to ₹39.5 lakh crore in February 2023 compared to ₹39.6 lakh crore in January 2023. The decline in AUM was predominantly due to mark to market losses in equity oriented funds, said domestic brokerage ICICI Direct.
