The government has announced that profits from unlisted bonds and debentures will be taxed as short-term capital gains, regardless of the holding period. This change, effective from July 23, 2024, classifies these instruments as short-term capital assets when transferred, redeemed, or on maturity. However, major high-yield investors are unlikely to be impacted in a big way, according to experts.
Credit funds typically hold these instruments until maturity to benefit from high yields, which lowers the impact of new tax regulations for those not seeking to realise capital gains through sales. However, some credit fund investors prefer listed instruments for better trading opportunities, higher profit margins, and ease of selling to HNIs, as seen by Goswami Infratech.
“Some entities may still opt for unlisted bonds or debentures to avoid regulatory scrutiny,” said Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap LLP. “Major high-yield investors and credit funds might prefer unlisted instruments to absorb the entire issue size directly. In contrast, listed issuances require an electronic bidding process, which can hinder securing full allotment.”
Investors are likely to demand higher yields to compensate for increased capital gains tax, potentially pushing overall yields on unlisted instruments higher.
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