Mutual funds reinstate international funds before new tax regulations kick in from April 1
By siliconindia | Tuesday, March 28, 2023
Domestic mutual fund houses have continued accepting lumpsum contributions to their international equity plans after the recent Finance Bill removed tax advantages for debt-oriented saving plans from April. Onshore plans that invest in overseas markets are treated as debt funds locally for taxation purposes. At least three asset management companies (AMCs) have together opened 16 international equity mutual fund programmes for lump sum investments up to the amounts legally permissible. The Finance Bill amendments, applicable from the next financial year beginning April, will remove indexation benefits for debt oriented savings plans.
Edelweiss Mutual Fund has opened seven of its international funds for lump sum subscription and switch in transactions, while Mirae has opened six such plans and Franklin Templeton three. DSP Mutual Fund, Motilal Oswal Mutual Fund, Axis MF, Nippon India AMC and ICICI Prudential Mutual Fund are some other fund houses that have continued to accept investments without curbs.
"We see this as an excellent opportunity to take advantage of market corrections and want to offer investors the chance to benefit from tax advantages by investing," said Radhika Gupta, MD and CEO, Edelweiss AMC. Some of these asset managers had suspended fresh investments in these mutual funds as the amounts confronted overseas investment limits. The overall limit for mutual fund overseas investments is $7 billion, while another $1 billion can be invested in exchange traded funds, or ETFs.
This window allows investors to deploy money before March 31 and take advantage of indexation benefits. For investments in these products done before March 31 and held for more than three years, investors need to pay a 20% long-term capital gains tax with indexation, potentially reducing the tax liability significantly.
From April 1, capital gains arising from investments in debt mutual fund plans will be added to the taxable income of the saver, and the gains will be taxed in line with the income tax slab rate. Over the weekend, mutual funds were seen nudging investors to put money in their debt plans before March 31.
"Valuations have cooled off in the US markets; so if you are looking to make an investment in the next few days, it is better to do it now as you get the additional benefit of taxation," said Nirav Karkera, research head, Fisdom. Analysts and financial experts are cautioning investors against going overboard just to take advantage of the lower taxes.
"Investors must put in 10-15% of the portfolios in international funds with the aim of diversifying their equity portfolio and getting access to niche businesses that are not available in India," said Karkera.
He recommends an investment in the Nasdaq 100 fund, which has lost 7.5% in the last one year, and the S&P 500 broad based index that lost 3.6% in the last one year. Financial experts believe retail investors who have started their investment journey should first build their Indian portfolios and not get into this rush. "Retail investors with small portfolios and not in high tax brackets need not rush to make an overseas investment," said Nikhil Gupta, Founder, Sage Capital.
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