HNIs & family offices may turn to AIFs after tax blow to debt MFs

Since debt MFs will now be on a par with AIFs on the taxation front, the returns on each will only be a function of yields

With the government deciding to end tax benefits enjoyed by debt mutual funds (MFs), wealthy investors and family offices could turn to alternative investment funds (AIFs), chasing high-yielding assets.

Last Friday, the Lok Sabha passed the Finance Bill with 45 amendments, taxing gains from debt funds, irrespective of the holding period, at the income tax rate. The move has put an end to the long-term capital gains taxation and indexation benefits enjoyed by the Rs 40-trillion MF industry.

From April 1, the post-tax returns from investing in debt MFs are expected to fall sharply, particularly for those in the highest