The Union Budget 2024-25 brought some changes in taxation with regards to certain categories of mutual funds. Here’s how your taxation will be affected after the change
Your allocation to various assets, including mutual funds, should be based on your investment objectives, risk appetite and investment horizon. However, certain developments have taken place recently, which to an extent could have an impact on your investing decision in certain categories of mutual funds. Let’s take a look at these mutual fund categories in detail.
Fund of Funds (FoFs)
Fund of Funds (FoFs) are mutual funds that invest in other funds. The purpose is to get the features of other funds in one wrapper fund.
The logic to invest in FoFs is that they manage the allocation to the underlying funds, usually equity and debt, in accordance with a certain risk profile and mandate. You can do this at your end, too, by investing in pure equity funds or debt funds, or by investing directly in equity stocks and bonds.
However, when you do a portfolio adjustment yourself, there is a tax implication that has to be taken into consideration. So, when you are moving from one fund to another, it will be considered as a sale and purchase, and there will be consequent tax impact on the transaction. When you sell and purchase equity stocks or bonds, there is a tax impact, too. A mutual fund, per se, is a tax-free entity; the tax you pay is on your gains and payouts. Hence, as long as your objectives and the mandate of the fund matches, there is good reason to invest in FoFs.
Now there is a favourable change in taxation of gains from FoFs. Till July 22, 2024, in the growth option of FoFs, the gains were taxable at the marginal slab rate (MSL), which for many investors in the highest tax bracket, was 30 per cent plus surcharge and cess. After July 23, 2024, provided you hold on to the fund for a minimum of two years, it will be taxed at 12.5 per cent plus surcharge and cess.
One counter-argument against FoFs is that there are two layers of expenses charged on FoFs: once in the underlying fund and once in the wrapper fund. This is something that the investor has to consider.
Taxation On MFs After Budget
Your allocation to various assets, including mutual funds, should be based on your investment objectives, risk appetite and investment horizon. However, certain developments have taken place recently, which to an extent could have an impact on your investing decision in certain categories of mutual funds. Let’s take a look at these mutual fund categories in detail.
Fund of Funds (FoFs)
Fund of Funds (FoFs) are mutual funds that invest in other funds. The purpose is to get the features of other funds in one wrapper fund.
The logic to invest in FoFs is that they manage the allocation to the underlying funds, usually equity and debt, in accordance with a certain risk profile and mandate. You can do this at your end, too, by investing in pure equity funds or debt funds, or by investing directly in equity stocks and bonds.
However, when you do a portfolio adjustment yourself, there is a tax implication that has to be taken into consideration. So, when you are moving from one fund to another, it will be considered as a sale and purchase, and there will be consequent tax impact on the transaction. When you sell and purchase equity stocks or bonds, there is a tax impact, too. A mutual fund, per se, is a tax-free entity; the tax you pay is on your gains and payouts. Hence, as long as your objectives and the mandate of the fund matches, there is good reason to invest in FoFs.
Now there is a favourable change in taxation of gains from FoFs. Till July 22, 2024, in the growth option of FoFs, the gains were taxable at the marginal slab rate (MSL), which for many investors in the highest tax bracket, was 30 per cent plus surcharge and cess. After July 23, 2024, provided you hold on to the fund for a minimum of two years, it will be taxed at 12.5 per cent plus surcharge and cess.
One counter-argument against FoFs is that there are two layers of expenses charged on FoFs: once in the underlying fund and once in the wrapper fund. This is something that the investor has to consider.
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There is also a Securities and Exchange Board of India (Sebi) regulation on the expenses that may be charged to a FoF, including on both the layers.
In both index funds and exchange-traded funds (ETFs), total expenses, including on the underlying funds should be within 1 per cent. For FoFs investing in equity funds, it should be within 2.25 per cent, including the underlying funds, and in other FoFs, the ceiling is 2 per cent.
Gold And Silver ETFs
Given the geo-political uncertainties and the increased buying of gold by the central banks across the world, there is enhanced reason to have some gold in your portfolio.
In the latest Union Budget (Budget 2024-25), subsequent to the reduction in customs duty, there was a fall in domestic gold prices. However, this is a minor factor in the overall scenario, and gold prices have risen again. The big picture is that for diversification purposes, you should have an allocation of 10-15 per cent in gold. One fact that remains constant is that the aspects driving the global price of gold remains intact.
Taxation On MFs After Budget
Your allocation to various assets, including mutual funds, should be based on your investment objectives, risk appetite and investment horizon. However, certain developments have taken place recently, which to an extent could have an impact on your investing decision in certain categories of mutual funds. Let’s take a look at these mutual fund categories in detail.
Fund of Funds (FoFs)
Fund of Funds (FoFs) are mutual funds that invest in other funds. The purpose is to get the features of other funds in one wrapper fund.
The logic to invest in FoFs is that they manage the allocation to the underlying funds, usually equity and debt, in accordance with a certain risk profile and mandate. You can do this at your end, too, by investing in pure equity funds or debt funds, or by investing directly in equity stocks and bonds.
However, when you do a portfolio adjustment yourself, there is a tax implication that has to be taken into consideration. So, when you are moving from one fund to another, it will be considered as a sale and purchase, and there will be consequent tax impact on the transaction. When you sell and purchase equity stocks or bonds, there is a tax impact, too. A mutual fund, per se, is a tax-free entity; the tax you pay is on your gains and payouts. Hence, as long as your objectives and the mandate of the fund matches, there is good reason to invest in FoFs.
Now there is a favourable change in taxation of gains from FoFs. Till July 22, 2024, in the growth option of FoFs, the gains were taxable at the marginal slab rate (MSL), which for many investors in the highest tax bracket, was 30 per cent plus surcharge and cess. After July 23, 2024, provided you hold on to the fund for a minimum of two years, it will be taxed at 12.5 per cent plus surcharge and cess.
One counter-argument against FoFs is that there are two layers of expenses charged on FoFs: once in the underlying fund and once in the wrapper fund. This is something that the investor has to consider.
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There is also a Securities and Exchange Board of India (Sebi) regulation on the expenses that may be charged to a FoF, including on both the layers.
In both index funds and exchange-traded funds (ETFs), total expenses, including on the underlying funds should be within 1 per cent. For FoFs investing in equity funds, it should be within 2.25 per cent, including the underlying funds, and in other FoFs, the ceiling is 2 per cent.
Gold And Silver ETFs
Given the geo-political uncertainties and the increased buying of gold by the central banks across the world, there is enhanced reason to have some gold in your portfolio.
In the latest Union Budget (Budget 2024-25), subsequent to the reduction in customs duty, there was a fall in domestic gold prices. However, this is a minor factor in the overall scenario, and gold prices have risen again. The big picture is that for diversification purposes, you should have an allocation of 10-15 per cent in gold. One fact that remains constant is that the aspects driving the global price of gold remains intact.
Refer: https://www.outlookmoney.com/invest/taxation-on-mfs-after-budget