October 15, 2024
Operating Assets

Budget 2024 tilts tax scale in favour of international mutual funds. Time to go global?


The budget shocked investors with a change in capital gain structure but gave a relief to those investing in international funds. Finance Minister Nirmala Sitharaman announced a change in holding period, LTCG tax rate while keeping STCG tax rate unchanged for overseas FoFs (international funds), gold mutual funds, and equity FoFs.The holding period for equity FoFs, overseas FoFs (international funds), and gold mutual funds was reduced from more than 36 months to more than 24 months along with change in LTCG tax rate to 12.5%, from earlier being taxed as per the tax slab rate with no change in STCG tax rate. This announcement made equity FoFs, overseas FoFs (international funds), and gold mutual funds more attractive among investors.

“These changes collectively enhance the attractiveness of these investment categories by providing more favorable tax treatment and a shorter holding period for long-term benefits. Although the holding period for LTCG has been reduced from 36 months to 24 months, it is important to note that SEBI’s objective with these changes is to rationalize taxation rather than to promote short-term investments. These adjustments align with the goal of encouraging investors to consider these funds for their long-term strategic allocations,” explained Sagar Shinde, VP Research, Fisdom.


Also Read | Mutual fund jackpots: 13 schemes multiplied investor wealth over 4 times in 5 years

Before the budget announcement, the gain on international fund investments if held for less than three years were short-term and taxed at the investor’s income tax slab rate, while funds held beyond three years were taxed as long-term capital gains at 20%. Now, long-term capital gains tax has been reduced to 12.5% for funds held over 24 months. Investments held for less than 24 months will continue to be taxed as short-term at the investor’s tax slab rate.

Invest and Earn on ET Money – Get up to 9.5% p.a. returns

However, the market regulator Sebi told mutual funds to stop fresh subscriptions in overseas ETFs with effect from April 1, 2024, as the $1 billion investment limit was about to be breached. The mutual fund investors for a long time have avoided making investments in the international funds mainly due to high tax structure and limits set by RBI for overall investments into these funds.

The gold funds and international funds offer diversification to the investors and help them in risk management. After the changes in the tax structure these funds have become more attractive to the investors.

Now the question is should the investors make an allocation in international funds, gold funds, and equity FoFs at the current point of time?

The expert believes that investors should consider gold and international funds for investments as they both offer diversification.

“Among all other products, gold and international FoFs should be considered by investors. Gold remains a strategic hedge against inflation and economic downturns, while international exposure, especially to the US markets, provides opportunities for growth due to favorable currency depreciation and economic recovery. These changes further incentivize investors to include these funds in their portfolios, optimizing both diversification and tax efficiency,” advised Shinde.

Also Read | These equity mutual funds outperformed their benchmarks in 3 years

In the past one year, international funds gave an average return of 12.53% with the highest return offered by Mirae Asset NYSE FANG+ETF FoF of around 51.83%. Mirae Asset S&P 500 Top 50 ETF FoF gave 34.81% return in the said period.Mirae Asset Global Electric & Autonomous Vehicles ETFs FoF lost the most of around 16.93% in the similar period.
On the other hand, gold funds offered an average return of around 14.54% in the last one year. UTI Gold ETF FoF gave the highest return of around 18.73%, followed by Axis Gold Fund which gave 18.53% return in the similar time frame. Edelweiss Gold and Silver ETF FoF gave the lowest return of around 10.96% in the said period.
Are you looking forward to making investments in these funds? What should be the strategy you should follow?

“Systematic Investment Plans (SIPs) and Systematic Transfer Plans (STPs) are the best ways to invest in these funds. Despite a positive outlook, volatility may persist in the near term. Therefore, a minimum time horizon of five years is advisable when investing in these funds,” recommended Shinde.

One should always consider risk appetite, investment horizon, and goal before making investment decisions.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

If you have any mutual fund queries, message on ET Mutual Funds on Facebook/Twitter. We will get it answered by our panel of experts. Do share your questions on ETMFqueries@timesinternet.in alongwith your age, risk profile, and twitter handle.
Whatsapp Banner



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *