When it involves SIPs, HNIs have failed to take care of greater ticket SIPs because the returns by means of the route over the previous three years have been minimal.
Although HNIs comprehend the benefits of mutual funds over different monetary merchandise, previous issues within the sector nonetheless concern them.
With the debt mutual fund schemes now beneath the tax ambit, the attractiveness of the product has lowered as High Net price Individuals (HNIs) are favouring financial institution mounted deposits (FDs) over such funds, in accordance with a brand new report launched on Thursday.
Interest charges on financial institution deposits have elevated considerably over the previous one yr, mentioned a report by Motilal Oswal Financial Services.
“This led to HNIs getting inclined in direction of financial institution mounted deposits over debt mutual funds,” news agency PTI quoted Nitin Aggarwal, head of BFSI research at Motilal Oswal Institutional Equities, as saying.
Although HNIs comprehend the advantages of mutual funds over other financial products, past problems in the sector still concern them.
The report is based on the inputs of large mutual fund distributors, having an asset under management (AUM) in excess of Rs 1,000 crore, and institutional sales representatives.
According to the report, HNIs have also been preferring PMS (Portfolio Management Schemes) and AIFs (Alternative Investment Funds) as they find mutual fund products commoditised.
When it comes to systematic investment plans (SIPs), HNI customers have failed to maintain higher ticket SIPs as the returns through the route over the past three years have been minimal. This led to the HNI segment experiencing lower renewal rates of SIPs. HNIs are preferring bank FDs over the debt mutual fund following the new taxation rules for the funds that kicked in from April 1.
Under the new rule, investment 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.
Debt mutual funds held for more than three years will no longer enjoy indexation benefits and additionally, existing LTCG (Long-Term Capital Gain) benefits will continue for investments made on or before March 31, 2023.
Indexation takes into account the inflation during the holding period of a mutual fund unit and consequently increases the purchase price of the asset and this reduces the tax.
(With PTI inputs)
