The idea of indexation has vanished from mutual funds (MFs), according to Radhika Gupta, MD and CEO of Edelweiss Asset Management Company (AMC), who made this announcement on Tuesday.
In her summary of the MF adjustments after the Union Budget 2024–25, she mentioned that MFs were previously subject to various taxes categories.
Certain mutual funds have both long-term and short-term taxes. Certain mutual funds were subject to marginal tax rates, while others featured the indexation feature. In a video that was uploaded on X, Gupta stated, “With this Budget, all of this gets simplified and the concept of indexation goes away.”
There are now three taxes types available to MF consumers.
According to her explanation, mutual funds and equity with an equity percentage greater than 65% fall under category one. They are subject to capital asset taxes, with short-term rates of 20% and long-term rates of 12.5%; anything held for more than a year is considered long-term.
Funds that own above 65% of debt securities fall into the second group; they are taxed at the marginal rate without regard to short- and long-term investments.
“The third category consists of investments that do not fall into any of the other two categories. Examples of these include gold index funds and gold ETFs, funds of funds that invest in international funds or equities, or conservative hybrid funds.” Gupta concluded.
These are subject to marginal taxation in the short term and 12.5% taxation in the long term, which is defined as longer than two years.
“If you are a long-term investor, you now pay 12.5% capital gains tax over a two-year period instead of the marginal rate of taxation,” the speaker stated.
