Here are the key changes in the tax structure of mutual funds, according to a report by Fisdom Research.
Equity mutual funds
In case of equity mutual funds, the units with a holding period of more than 12 months were taxed at 15% (STCG) and 10% (LTCG). These units will now be taxed at 20% (STCG) and 12.5% (LTCG).
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Specified mutual funds which has more than 65% in debt
Earlier if the holding period was more than 36 months, these schemes were taxed as per investors’ tax slab (LTCG and STCG). The holding period for specified mutual funds which have more than 65% in debt has been changed to more than 24 months and will continue to be taxed as per investors’ tax slab (LTCG and STCG).
Equity FoFs
Earlier the holding period for equity FoFs was more than 36 months and was taxed as per slab rate (LTCG and STCG). The holding period for these schemes has now been changed to more than 24 months. The LTCG has been changed to 12.5% from as per tax slab rate whereas STCG remains unchanged.
Overseas FoF
The holding period for overseas Fund of Funds (FoFs) has been reduced from more than 36 months to more than 24 months. The Long-Term Capital Gains (LTCG) tax rate has been adjusted to 12.5% from earlier of being taxed as per tax slab rate, while the Short-Term Capital Gains (STCG) tax rate remains unchanged.
Gold mutual funds
Earlier, the holding period for gold mutual funds was more than 36 months. However, in the recent budget announcement, the holding period has been reduced to more than 24 months. The LTCG, which was previously taxed as per the individual’s tax slab rate, has now been fixed at 12.5%. The Short-Term Capital Gain (STCG) remains unchanged.
The report also highlighted the way forward for the different asset classes by saying instead of avoiding the markets, focus on active participation using smart portfolio strategies. For the equity asset class, the bottom-up opportunities still exist. Investors should follow 60:20:20 when it comes to large, mid, and smallcap allocation. It’s a buy-on-dip market. In the case of debt, investors should follow the Barbell Strategy, overweight on duration play, and reduced fiscal deficit projections, coupled with global bond inclusion and decreased gross borrowing, will likely have a positive impact on the bond market.
For Gold, the outlook remains neutral with a positive bias. The report suggested that investors buy on the dip and maintain it as a strategic allocation. Lastly, for international equities, investors should maintain it as a strategic allocation, and avoid going overweight.
The finance minister also announced that 20% TDS on repurchase by mutual funds and UTI was withdrawn. After the announcement the stocks that were in focus were HDFC AMC, UTI AMC, and Nippon AMC which were down by 2.7%, 1%, and 2.2% respectively, according to the report.