Will new income tax rules encourage crorepati investors to shift from PMS to MF?
union budget has widened the gap between PMS and MF in income tax terms, many suspect that HNI investors may be encouraged to tilt more towards mutual funds due to their tax-friendly nature.
In the union budget announcement, there was an increase in capital gain tax. The short-term gains on specified financial assets was changed to 20% instead of the previous 15%. The long-term gains on all financial and non-financial assets was changed to 12.5% from 10% earlier. The difference in tax rate which earlier was 5% has been widened to 7.5% post budget announcement.
“On taxes, PMS does poorly compared to MFs, which is a significant drawback. Unlike PMS, where taxes are applied even if investors do not liquidate but fund managers make changes to the portfolio, mutual funds only impose short-term or long-term capital gains on investors when they sell their units. With an average turnover ratio of 50% in PMS, there is an extra 1-2% tax obligation on total assets,” said Amar Ranu, Head-Investment Products & Insights, Anand Rathi Shares and Stock Brokers.
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