Gold funds, international funds, FoF to benefit from Budget: Radhika Gupta of Edelweiss Mutual Fund

Post the change in long-term tax of gold funds (index fund or ETF), international funds, and fund of funds, Edelweiss Mutual Fund CEO, Radhika Gupta suggested to investors that these funds can get a material benefit if they are long-term investors. These funds earlier were taxed as per tax slab (LTCG and STCG) but now will be taxed at 12.5% (LTCG) with no change in STCG.

“Your gold funds, your international funds, your fund of funds actually get a material benefit if you are a long-term investor. In the short term they remain the same but if you are a long-term investor who is investing for more than two years instead of attracting the marginal rate of taxation which they attracted after last year‘s budget they now attract 12.5% capital gains tax over a two-year long term.”

For gold funds, FoF, and international funds, she also mentioned, “The third category is very interesting. It is the stuff that doesn't fit either into the equity category or the debt category. This could be a gold index fund or a gold ETF. This could be a fund of funds that is investing in equity funds. This could be an international fund or this could be some category of conservative hybrid or hybrid funds that don’t have more than 65% equity. Now these have a taxation that is long term and short term. Here the short term is the marginal rate of taxation. Long term however is 12.5% where long term means more than two years.”

Focussing on equity mutual funds, the CEO mentioned that these funds are taxed as capital assets - 20% in the short term and 12.5% in the long term. She said, “Category one is what equity and mutual funds that have more than 65% equity. They are taxed as capital assets, 20% in the short term and 12 and a half percent in the long term with the long term being anything held for more than one year.”

Debt mutual funds that hold more than 65% in debt securities are taxed at the marginal rate of income regardless of the tenure. There is no concept of long-term or short-term in debt mutual funds.

“The second is debt mutual funds which are funds that hold more than 65% in debt securities. They are taxed at the marginal rate of income regardless of whether they are held for short term or long term. There is no concept of short-term and long-term there,” said Radhika Gupta.

She also added, “Your debt mutual funds remain unchanged from last year at marginal rates.”

Radhika Gupta also mentioned how mutual funds had different taxation categories before this budget and how these categories were taxed and what has changed after the budget.

“Mutual funds had different kinds of taxation categories before this budget. Some mutual funds were taxed as long-term and short-term, some were taxed with a marginal rate of taxation and some mutual funds had this concept of indexation. With this budget all of this gets simplified, and the concept of indexation goes away. What you are left with essentially is three categories of taxation,” said the CEO.