The govt has amended the financial bill 2023 to remove the LTCG taxation at 20% with indexation for mutual funds holding 35% of lower Indian equity. The gains from such funds will be taxed as per slab, regardless of the age of the unit. This rule applies to purchases made on or after 1st April 2023.
Therfore many investors want to know if they can invest a lump sum in their debt funds or conservative hybrid funds up to March 31st 2023, to benefit from the old tax rule at the rate of 20% with indexation.
The short answer to “Should I invest a lump sum in debt mutual funds before 1st April 2023?” is an obvious and vehement NO. That would be a silly thing to do.
If you can suddenly conjure up a lump sum to benefit from tax law changes, it typically means you are yet to manage your money according to a holistic financial plan. Were you doing this, no such investible surplus would be untagged to short- or long-term goals.
So we strongly recommend working with a SEBI registered fee-only advisor and getting your affairs in order instead of worrying about small-time benefits. We reiterate that no investment decision should be made only to save tax. This would only hurt the health of the portfolio.
But what about international funds? Will I not benefit from a lump sum investment now? Even if we assume the return from that investment actually turns positive “over the long term” (who told you it would?!), the small tax difference again “over the long term” will be minuscule compared to your total portfolio. All these mental gymnastics are more for psychological benefit than numerical benefit.
Let us wait for AMFI to represent its case to the finance ministry and SEBI. Some funds are likely to change their mandate. Let us then take a call about the next move. That said, it would be better to make peace with ourselves about the extra tax and get used to it.
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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