Several fund houses have reopened their international schemes like Fund of Funds (FoFs) to augment their capital inflow after the government announced to remove long-term capital gains (LTCG) tax from FY24. In the Finance Bill 2023 passed by Lok Sabha last week, the finance ministry announced to tax income from debt mutual funds as short-term capital gains.
The changes will be effective from April 1, 2023. Besides debt funds, international schemes, FoFs and gold funds will also lose the LTCG benefits. Following this, AMCs such as the Mirae Asset Mutual Fund, Franklin Templeton Mutual Fund, and Edelweiss Mutual Fund have reopened subscriptions for their international schemes.
In January 2022, the Security and Exchange Board of India (Sebi) stopped the fresh subscriptions by AMCs for schemes investing in overseas equities. However in June 2022, it again allowed AMCs to invest in foreign assets with a mandatory $7 million cap.
Says Siddharth Srivastava, head of ETF Product & fund manager at Mirae Asset AMC, said: “We have opened subscriptions in lump sum manner for our 3 international ETFs and 3 Fund of Fund from March 27. The existing Systematic Investment Plans (STPs) and Systematic Transfer Plans (STPs) will reopen from March 29.” Fresh SIPs and STPs will not be allowed.
He added “Since we have limited room to take fresh inflows, these funds are likely to get closed again in the future for subscription to comply with the current regulatory limit and applicable guidelines for the overseas funds. In case of ETFs, investor can transact on exchange in any quantity or in multiple of basket size with the AMC directly.” For FOFs, he said, investors can use avenues like lump sum or switch-ins to take exposure in the underlying ETFs.
Until now, long-term debt mutual funds used to attract investors because of the lower tax liability and indexation benefits. Under the new rule, capital gains from debt funds, international schemes, and gold ETFs will be liable for taxation as per the tax slabs.
However, investments in these schemes before April 1, 2023, will continue to enjoy the LTCG tax treatment, the reason why AMC have reopened subscriptions for international schemes eligible for LTCG benefits to attract capital inflow.
It will primarily help those in the higher tax bracket to save money on their investment. Investors can directly invest in ETFs and FoFs through their DMAT accounts or the AMCs.
