Quote on Debt funds from CA Manish. P Hingar, Founder at Fintoo
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According to the proposed amendments to the Finance Bill 2023, debt mutual funds may no longer receive indexation benefits and will be taxed at marginal rates. This will also affect gold funds and international funds. As a result, bank fixed deposits will become more attractive as both debt funds and bank fixed deposits will be subject to the same taxability of maturity proceeds.
This move may have a negative impact on all debt funds, particularly in the retail category, as ultra-high net worth and high net worth individuals may choose to invest in safe havens like bank fixed deposits. We may see a shift from long-term debt funds to equity funds, and money may be directed towards sovereign gold bonds, bank fixed deposits, and non-convertible debentures in the debt category. This is good news for banks as they can attract customers with higher interest rates and increase their borrowing and saving book sizes.
It is apparent that the government intends to remove tax arbitrage by creating a consistent tax policy across all debt instruments. In this regard, the government has proposed a similar taxation policy for insurance product (savings) maturity proceeds, wherein annual premiums exceeding 5 lakh rupees will be taxed post 31st March 23.” said CA Manish. P Hingar, Founder at Fintoo
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