The Finance Bill 2023 has proposed major changes to debt mutual funds, which relates to exclusion of long-term capital gains and indexation benefits. The proposal, if approved by the Parliament, will be applicable to investments made on or after April 1, 2023.

In an interview with CNBC-TV18, Feroze Azeez, Deputy CEO of Anand Rathi Wealth highlighted the importance of maintaining a positive outlook even during challenging times, stating that "people should see the silver lining over a dark cloud." He also highlighted the benefits of investing in capital gains, which can offer a loss set-off compared to buying an FD (fixed deposit).

He said, “People have to do more work, have to do more mind application when it comes to taxation - is what this means. She (FM) has not categorised this as interest income. She has categorised it as a capital gain. So, people should see the silver lining in the dark cloud, and I still would, any day, prefer short-term capital gain as against interest income.”

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Meanwhile, DP Singh, Deputy MD and Chief Business Officer at SBI MF discussed the difference between a mutual fund and deposit yields, stating that "there will still be a gap of 100-150 bps between MF and deposit yields." He also mentioned that more than 50 percent of corporate share are in debt funds, while HNI (high net worth individual) share would be about 20-25 percent.

A Balasubramanian, Chairman of AMFI and MD and CEO of Aditya Birla Sun Life AMC said that the move towards hybrid funds could become more attractive. He also mentioned that investors would have to change their scheme selection as opposed to asset allocation and that they would move towards hybrid and other funds.

Also Read | Decoding Finance Bill proposals for debt funds: What remains and what changes

Azeez also predicted a "flight of capital" inside mutual funds but among different categories, with investors switching to hybrid and other funds. These changes are driven by market conditions and shifts in investor sentiment, as people look for ways to navigate the volatility and uncertainty of the current economic landscape.

Also Read | Debt funds held over 3 years to no longer enjoy indexation benefit, long-term capital gains set to go

For the entire discussion, watch the accompanying video

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