Fund houses offer rollover option for debt MFs

The mutual fund industry is not enthused as all investments made into debt schemes before July 10 and redeemed after July 10 will be taxed at the new rates.

Mutual fund houses say they will give investors in debt instruments the option of a rollover for three years to save on taxes.

The move by the fund houses follows the government’s decision, to exempt redemptions from debt mutual funds made between April 1 and July 10 from, which the fund houses have termed as a partial relief.

Finance minister Arun Jaitley had in his Budget speech proposed to tax capital gains from debt investments having a maturity period of less than 36 months at the marginal tax rate.

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Under this proposal, only investments of over three years would be considered as long-term capital gains and would be taxed at 20 per cent with indexation benefit.

The mutual fund industry is not enthused as all investments made into debt schemes before July 10 and redeemed after July 10 will be taxed at the new rates.

“Its a mixed bag. We welcome the step but its a partial relief,” said Chandresh Nigam, CEO, Axis MF.

“The clarification today means that only units that are sold after July 10 will come under the new tax rate,” said A Balasubramanian, CEO, Birla Sunlife MF adding that while the move may seem to be bad in the short-term it is good for the long-term as it will promote long-term debt savings.

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The fund houses are, however, offering the debt mutual fund investors the option to roll over their investments in the fund for a period of three years so that their investment qualify under falls under long-term capital gains tax.

“We will roll over the investment, subject to the investor agreeing to it. If an investor wants to withdraw after the investment period and pay the higher tax rate, we will facilitate that, but in case the investor wants to carry forward his investment, then we will allow the rollover till a three-year period to save on the short-term tax rate which otherwise would apply,” said Balasubramanian.