New Debt Mutual Fund Norms: AMCs Open Subscription For International Schemes

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New Delhi: Several asset management companies (AMCs) have opened up a subscription for international schemes to maximise inflows ahead of new taxation rules for debt mutual funds kicking in from April 1. The fund houses that resumed their international schemes are -- Franklin Templeton Mutual Fund, Mirae Asset Mutual Fund, and Edelweiss Mutual Fund.

Edelweiss Mutual has opened its all seven international funds for subscription from this Monday. It has started accepting switch-in or lumpsum transactions in these schemes. ()

"We had some limits, so we thought of letting investors take benefit of taxation by investing before March 31," Niranjan Awasthi, Head - Product, Marketing and Digital Business at Edelweiss AMC told PTI. ()

Mirae Asset has opened subscriptions in a lump sum manner for three international ETFs and three Fund of Fund (FoF) based on these ETFs from March 27 onwards.

The existing Systematic Investment Plan (SIP) and Systematic Transfer Plan (STP) will reopen from March 29 onwards. However, fresh SIP and STP will not be allowed.

"Since we have limited room available to take fresh inflows, these funds are likely to get closed again in future for subscription, in order to comply with the current regulatory limit and applicable guidelines for the overseas funds," Siddharth Srivastava, Head - ETF Product & Fund Manager at Mirae Asset Investment Managers (India) Pvt Ltd said.

In the case of ETFs, investors can transact on exchange in any quantity or in multiple basket sizes with the AMC directly and in the case of FoFs, investors can use multiple avenues like a lump sum or switch-ins to take exposure in the underlying ETFs, he added.

Capital markets regulator Sebi in June 2022 permitted mutual funds to again invest in foreign stocks within the aggregate mandated limit of USD 7 billion for the industry. In January last year, the regulator asked fund houses to stop taking fresh subscriptions in schemes investing in overseas stocks.

In addition, Franklin Templeton Mutual Fund has begun accepting fresh or lump sum investments in its three overseas schemes. Experts believe that investors subscribing to these international schemes before March 31, will be eligible for the indexation benefit.

Moreover, they are suggesting investors subscribe to debt funds, international funds, and gold funds to get indexation benefits.

"One caveat for existing investors through this news flow remains, that existing investments in debt funds, international funds, and gold funds, and even new investments made in them until March 31, 2023, will not be affected by the proposed amendments," Axis Mutual Fund said in a note on Friday.

The move by AMCs came after the Ministry of Finance on Thursday amended Finance Bill 2023, which classified income from debt mutual funds as a short-term capital gain. The new norms are set to kick in from April 1, 2023.

Under the new rule, investments in debt mutual funds that are bought on or after April 1, 2023, will be taxed as short-term capital gains at applicable tax rates.

That is, capital gains from debt funds, international funds, and gold exchange-traded funds (ETFs), irrespective of their holding period, will be taxed at an individual's relevant applicable tax rate.