Are you looking for investment Option Post Union Budget

 

The recent budget has created lot of issues for investors to invest keeping the current capital gain related tweak.  I have been flooded with queries on investments products starting from sovereign gold bonds to debt mutual funds.  The recent reduction in import duty for Gold has lead to SGB to lose its shine in terms of investments.  One of the biggest search operations among investors is that every investor is looking for that product where one can take advantage of the Union budget taxation rule.

Are you looking ahead for investments in Mutual Funds where one can take advantage of the recent budget then in that case one should look towards Specified Mutual Funds.

The recent changes in the definition of 'Specified Mutual Fund' in Budget 2024 have revitalized the tax advantages for mutual fund schemes investing in overseas assets. Here’s a breakdown of the key points:

Background and Changes

1. Budget 2023 Changes:
• In Budget 2023, mutual funds investing less than 35% in equities were categorized as 'Specified Mutual Funds'.
• The aim was to remove the LTCG and indexation benefits for debt funds.
• However, this change inadvertently affected other funds like international funds, gold funds, and gold ETFs, as they also met this definition.
2. Budget 2024 Clarification:
• Budget 2024 redefined 'Specified Mutual Funds' to include only those funds that invest at least 65% of their assets in debt and money market instruments.
• This redefinition excludes international funds, gold funds, and gold ETFs from being classified as 'Specified Mutual Funds'.

Impact of the Changes

1. Restoration of Tax Advantages:
• International funds and other affected categories regain their tax benefits, such as LTCG and indexation, making them more attractive to investors.
2. Renewed Interest and Growth Potential:
• The assets under management (AUM) for funds investing in international stocks and ETFs grew significantly between January 2020 and January 2022, from Rs 4,220 crore to Rs 42,632 crore.
• The number of overseas fund schemes also nearly doubled during this period.
• There is renewed interest among advisors and investors, eager to invest in international funds again.
3. SEBI Regulations:
• In January 2022, SEBI had restricted additional investments in foreign securities by overseas funds.
• The extent of new investments will depend on the relaxation of these limits by SEBI.

Summary

The Budget 2024 clarification on 'Specified Mutual Funds' has brought back the tax advantages for international funds, gold funds, and gold ETFs, potentially driving renewed growth and interest in these funds. Investors and advisors are optimistic, but future flows will hinge on regulatory adjustments regarding overseas investment limits. SEBI & RBI needs to look into the same since post capital gain hike and abolishment of Indexation would lead to limited option for investments. Once should look for doing SIP in these funds and should consult their financial advisors before getting into the same.