There is no transfer or redemption of units held by the investor in side-pocketing
In December 2018, in the light of various defaults by issuer companies on debt instruments held by mutual funds, the Securities and Exchange Board of India (Sebi) introduced the concept of side-pocketing. Under side-pocketing, such downgraded instruments are hived off into a separate portfolio, termed a side pocket of the scheme, and the investor in the scheme is allotted units of the side-pocket, in the same ratio as the investment in the scheme. Two mutual funds have already announced the creation of side-pockets in respect of certain securities where the redemption is likely to be delayed beyond the life of the scheme. What is the tax impact of such side-pocketing on investors?