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FMPs, debt funds may become less attractive

If you now make a long-term capital gain of 25% after three years, your effective gain post-taxes would be 17.5%, compared to the 22.5% return you would have enjoyed earlier

July 15, 2014 10:50 IST | India Infoline News Service
The imposition of higher taxes on FMPs (fixed maturity plans) and debt fund investments has made them less attractive. The Budget clearly states that all non-equity mutual funds will suffer higher taxes. The increase in dividend distribution tax also comes as a blow to investors.
The budget has made two changes. The tax rate has been raised to 20% and the holding period for the units to be eligible for long-term capital gains to 36 months from 12 months. However, the indexation benefit will still be available to investors.
“I propose to increase the rate of tax on longterm capital gains from 10% to 20% on transfer of units of such funds,” finance minister Arun Jaitley said in the budget on 10 July. The Finance Bill has stated that the amendments would be effective from April 1, 2015.
So if you now make a long-term capital gain of 25% after three years, your effective gain post-taxes would be 17.5%, compared to the 22.5% return you would have enjoyed earlier.
At present, fixed maturity plans have a corpus of Rs.1.75 trillion with more than 70% falling under 13-14 month fixed maturity plans.

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