Investors shifted to long-term debt funds in March ahead of latest tax pointers

Investor flows shifted to long-duration debt funds in March as market members sought to reap the advantages of the long-term capital good factors tax revenue that ceased to exist from 1 April, info from the Association of Mutual Funds in India (Amfi) confirmed. 

Long-duration and gilt funds attracted web inflows of ₹4,674 crore and ₹4,430 crore, respectively, whereas firm bond funds observed web inflows of ₹15,626 crore. Dynamic bond funds and banking & PSU funds moreover observed inflows, receiving ₹5,660 crore and INR 6,496 crore, respectively.

Debt fund investments made till April 1 will proceed to get pleasure from long-term capital good factors tax benefits. This means long-term capital good factors (funding held for higher than three years) is likely to be taxed at 20% with indexation revenue. Gains on investments made after 1 April is likely to be taxed at investor’s tax slab.

Meanwhile, shorter-duration schemes observed web outflows with liquid schemes seeing web outflows of ₹56,924 crore.

Outflows from liquid funds are anticipated on the end of financial yr as corporations need to pay advance tax.

“Mutual Funds witnessed significant AUM (assets under management) churn in March on the back of changes in tax laws. While the cash category saw outflow of ~ ₹65,000 crore, which is typically a year-end phenomenon, the arbitrage funds and funds with maturity of less than 1 year, saw outflows of ~ ₹12,000 crore and ~ ₹28,000 crore, respectively,” acknowledged Ajaykumar Gupta, chief enterprise officer, Trust Mutual Fund.

“A giant portion of the above outflow channeled itself once more into interval funds like firm bond, banking & PSU fund, dynamic bond, prolonged interval and gilt funds, which observed inflows totaling ~ ₹39,000 crore. With an inflow of ₹27,000 crore, the objective maturity funds/index funds was the largest beneficiary as merchants reallocated funds throughout the prolonged interval funds to avail indexation benefits,” he added.

Mutual funds also rushed in launches of several target maturity funds in March so that investors can take advantage of the long-term capital gains tax benefit before 1 April.

Equity schemes on the other hand saw net inflows of ₹20,534 crore in March. This was the highest in 12 months.

The March flows were up 30% compared to the previous month.

Monthly contribution from systematic investment plans (SIPs) has grown steadily month-on-month. It stood at ₹14,276 crore, which is also the highest so far.

“India and its growing investor base continue to put faith in the equity markets via the mutual funds route. Equity-oriented mutual funds registered a net inflow of over ₹2 lakh crore in FY2022-23,” acknowledged NS Venkatesh, chief authorities, Amfi.

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