The window for availing of long-term capital gains tax (LTCG) benefits is closing fast as it will be available only for debt mutual fund schemes bought on or before the March 31, 2023, deadline. Understandably, the stakes are high for both buyers and sellers of mutual funds.
Fund houses and distributors have been bombarding investors with marketing emails for investing in debt funds before the LTCG option closes.
Some fund houses have reopened their international schemes like fund-of-funds (FoFs), while others pushed for debt and fixed-maturity plans to boost capital inflows in a last-minute push.
In the Finance Bill 2023 passed by Lok Sabha last week, the finance ministry announced withdrawing LTCG and taxing income from debt mutual funds as short-term capital gains.
With the indexation benefits no longer available from the next financial year, fund houses have doubled their efforts to convince investors to increase their investments in debt funds.
As per the new rules, from April 1, capital gains from debt mutual fund investments will be taxed as per the individual income tax slabs.
Three fixed-maturity plans, two gilt funds, one scheme each for dynamic asset allocation, FoF, exchange-traded fund (ETF), and index fund are open for subscription currently, according to ACE Mutual Fund Data. The two gilt funds are Aditya Birla Sun Life CRISIL IBX SDL Sep 2028 Index Fund and Mirae Asset Nifty SDL June 2028 Index Fund.
What Should You Do?
Don’t fall for this last-minute dash to save a little on long-term capital gains tax. The reality is debt funds and other categories, which enjoyed debt fund taxation, are now on par with other fixed-income products, such as bank fixed deposits.
Experts often suggest that one should invest according to their financial goals. The tax efficiency of a financial instrument is one aspect of it, and it should not be the core reason for investing. There are still many other categories of mutual funds that offer tax-efficient returns, they say.
So invest according to your financial goals and liquidity need, not just to utilise this taxation window. However, if it fits your investment goals, financial objectives and liquidity requirement, it is wiser to avail of this window, say experts
