New debt MF norms: AMCs open subscription for international schemes

Several asset management companies (AMCs) have opened up subscription for international schemes to maximise inflows ahead of new taxation rules for debt mutual funds kicking in from April 1.

The fund houses that resumed their international schemes are — Franklin Templeton Mutual Fund, Mirae Asset Mutual Fund and Edelweiss Mutual Fund.

Edelweiss Mutual has opened its all seven international funds for subscription from this Monday. It has started accepting switch-in or lumpsum transactions in these schemes.
“We had some limits, so we thought of letting investors take benefit of taxation by investing before March 31,” Niranjan Awasthi, Head – Product, Marketing and Digital Business at Edelweiss AMC told PTI.

Mirae Asset has opened subscription in a lump sum manner for three international ETFs and three Fund of Fund (FoF) based on these ETFs from March 27 onwards.
The existing Systematic Investment Plan (SIP) and Systematic Transfer Plan (STP) will reopen from March 29 onwards. However, fresh SIP and STP will not be allowed. “Since we have limited room available to take fresh inflows, these funds are likely to get closed again in future for subscription, in order to comply with the current regulatory limit and applicable guidelines for the overseas funds,” Siddharth Srivastava, Head – ETF Product & Fund Manager at Mirae Asset Investment Managers (India) Pvt Ltd said.

In case of ETFs, investors can transact on exchange in any quantity or in multiple of basket size with the AMC directly and in the case of FoFs, investors can use multiple avenues like lump sum or switch-ins to take exposure in the underlying ETFs, he added.

Capital markets regulator Sebi in June 2022 permitted mutual funds to again invest in foreign stocks within the aggregate mandated limit of USD 7 billion for the industry. In January last year, the regulator asked fund houses to stop taking fresh subscriptions in schemes investing in overseas stocks.

In addition, Franklin Templeton Mutual Fund has begun accepting fresh or lump sum investment in its three overseas schemes.

Experts believe that investors subscribing to these international schemes before March 31, will be eligible for the indexation benefit. Moreover, they are suggesting investors to subscribe to debt funds, international funds and gold funds to get indexation benefits.

“One caveat for existing investors through this news flow remains, that of existing investments in debt funds, international funds and gold funds, and even new investments made in them until March 31, 2023, will not be affected by the proposed amendments,” Axis Mutual Fund said in a note on Friday.

The move by AMCs came after the Ministry of Finance on Thursday amended Finance Bill 2023, that classified income from debt mutual funds as a short-term capital gain. The new norms are set to kick in from April 1, 2023.

Under the new rule, investment in debt mutual funds that are bought on or after April 1, 2023, will be taxed as short-term capital gains at applicable tax rates.
That is, capital gains from debt funds, international funds and gold exchange traded funds (ETFs), irrespective of their holding period, will be taxed at an individuals relevant applicable tax rate.

Debt mutual funds held for more than three years will no longer enjoy indexation benefits and additionally, existing LTCG (Long-Term Capital Gain) benefits will continue for investments made on or before March 31, 2023.
Indexation takes into account the inflation during the holding period of a mutual fund unit and consequently increases the purchase price of the asset and this reduces the tax.

(Except for the headline, this story has not been edited by The Federal staff and is auto-published from a syndicated feed.)