What was there in the Budget for mutual fund investors? Three key takeaways

Improvement in LTCG from marginal to 12.5% for gold, FoFs and international funds

The Finance Act, 2023, had introduced a special taxation regime of deemed short term capital gains taxation for Market Linked Debentures and Specified Mutual Funds by way of introduction of section 50AA of the Act. The gains in such cases were to be taxed as Short-term Capital Gain irrespective of period of holding. The requirement of investment of not more than 35% in equity shares has also impacted other funds which are not debt-oriented funds, but invest below 35% in equity shares. The funds which are adversely impacted include Exchange Traded Funds (ETFs), Gold Mutual Funds and Gold ETFs.

The definition of “Specified Mutual Fund” under clause (ii) of Explanation of section 50AA to provide that a specified mutual fund shall mean a mutual fund: a) a mutual fund by whatever name called, which invests more than sixty five per cent of its total proceeds in debt and money market instruments; or (b) a fund which invests sixty five per cent or more of its total proceeds in units of a fund referred to in sub-clause (a).

The above amendment under clause (ii) of Explanation of section 50AA is proposed to be brought into effect from 1st day of April, 2026 and shall be applicable from AY 2026-27 onwards.

"There are quite a few positives in the budget too, like taxation for gold funds and International funds which will now happen at 12.5% after a holding period of 2 years. This was happening at the tax slabs for the investors in the past. This was especially not fair for the equity fund of funds to get the same treatment as debt funds, but at least to some extent, the parity has been restored," said Rajesh Minocha, a Certified Financial Planner (CFP), Founder of Financial Radiance