What does Budget 2024 mean for mutual fund investors? Industry expert Radhika Gupta decodes

What does this mean? Industry expert Radhika Gupta explains

Edelweiss MD and CEO Radhika Gupta took to her X handle to explain how the tax rate changes will impact the mutual funds investors. Referring to the tax structure before the Budget 2024, she says mutual funds used to have different taxation categories as “some mutual funds were taxed as long term and short term, some mutual funds were taxed with marginal rates of taxation and some mutual funds had this concept of indexation”. However, with this Budget, this structure is simplified and the concept of indexation of goes away.

Gupta explains the three categories of taxation that the Budget 2024 has specified.  

Category 1: This is for equity and mutual funds that have more than 65% equity. They are taxed as capital assets at 20 per cent in the short term and 12.5 per cent in the long term, with the long term being anything held more than one year.

Category 2: These are funds that hold more than 65% in debt securities and are taxed at the marginal rate with no concept of short term and long term.

Category 3: These are the ones that do not fit in either of the above categories — like gold index fund or gold ETF or could be a funds of fund investing in equity fund or an international fund or a conservative hybrid or hybrid fund. These attract a taxation at marginal rate in short term and at 12.5 per cent in long term, with the long term being more than two years.

A quick summary of tax changes for mutual funds in this budget. Hope it is helpful! pic.twitter.com/Hymgd7H3JY

— Radhika Gupta (@iRadhikaGupta) July 23, 2024

How this impacts your mutual fund investments?

According to Gupta, looking at the first category, the equity mutual funds are having marginal increase in short-term taxation from 15 per cent to 20 per cent and long-term taxation from 10 per cent to 12.5 per cent. “So you are a tad bit worse off there,” she said.

There is no change in the impact on the second category of investment as compared to last year.

For the third category, long-term investors get a “material benefit” as they will attract 12.5 per cent tax instead of marginal rate of taxation which they used to attract after last year’s budget. However, nothing changes for the short-term investors in this category, Gupta said.