Debt taxation impact: Axis Mutual Fund, ABSL MF withdraw NFOs

As per circulars on BSE StAR MF Platform, refunds for the schemes would soon be released to clients' bank accounts.

Asset management companies (AMCs) Axis Mutual Fund and Aditya Birla Sun Life Mutual Fund have called off their new fund offers (NFOs).

The NFO period for Axis S&P 500 ETF Fund of Fund was March 22 to April 5, while Aditya Birla Sun Life Crisil IBX SDL Sep 2028 Index Fund was open from March 27 to April 5.

The withdrawals of the schemes came as investor focus shifted to existing debt funds after the government introduced changes to mutual fund taxation in the Finance Bill.

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It is likely that these funds failed to garner minimum subscription. Debt fund NFOs need to collect a minimum of Rs 20 crore, and for others, the threshold is Rs 10 crore.

As per circulars on BSE StAR MF Platform, refunds for the schemes would soon be released to clients' bank accounts.

According to the amendments to the Finance Bill, capital gains from investments in mutual funds, where not more than 35 percent is invested in domestic equities, will be taxed at a maximum marginal rate. This means that debt mutual funds no longer enjoy the benefits of long-term capital gains (LTCG) and indexation for fresh investments starting April 1.

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To be sure, debt investments till March 31, 2023 would continue to enjoy the earlier favourable taxation regime.

According to industry experts, to take this benefit, investors and distributors’ focus remained on existing debt mutual funds.

Industry reports suggest that Rs 40,000 crore flowed into debt mutual funds to take advantage of the favourable taxation till March 31.

Meanwhile, Quant Dynamic Asset Allocation Fund (QDAAF), a balanced advantage fund, which was opened during March 23 to April 6, also had to tweak its strategy.

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Earlier, unlike other BAFs, QDAAF was not insisting on having a minimal 65 percent equity exposure.

However, with the debt taxation tweak, Quant Mutual Fund decided to change the taxation structure of its dynamic asset allocation fund from debt to equity.

“In view of this impact, and in the larger interest of our investors, quant AMC has unanimously decided to reposition the quant DAAF and modify its taxation from debt to equity due to said amendments to the Finance Bill, 2023. Therefore, the amended investment strategy of quant DAAF, superseding our previous communication," the communication sent to unitholders noted.