Investor flows shifted to long-duration debt funds in March as market participants sought to take advantage of the long-term capital gains tax benefit that ceased to exist from 1 April, data from the Association of Mutual Funds in India (Amfi) showed.
Long-duration and gilt funds attracted net inflows of ₹4,674 crore and ₹4,430 crore, respectively, while corporate bond funds saw net inflows of ₹15,626 crore. Dynamic bond funds and banking & PSU funds also saw inflows, receiving ₹5,660 crore and INR 6,496 crore, respectively.
Debt fund investments made till April 1 will continue to enjoy long-term capital gains tax benefits. This means long-term capital gains (investment held for more than three years) will be taxed at 20% with indexation benefit. Gains on investments made after 1 April will be taxed at investor’s tax slab.
Meanwhile, shorter-duration schemes saw net outflows with liquid schemes seeing net outflows of ₹56,924 crore.
Outflows from liquid funds are expected at the end of financial year as companies need to pay advance tax.
“Mutual Funds witnessed significant AUM (assets under management) churn in March on the back of changes in tax laws. While the cash category saw outflow of ~ ₹65,000 crore, which is typically a year-end phenomenon, the arbitrage funds and funds with maturity of less than 1 year, saw outflows of ~ ₹12,000 crore and ~ ₹28,000 crore, respectively,” said Ajaykumar Gupta, chief business officer, Trust Mutual Fund.
“A large portion of the above outflow channeled itself back into duration funds like corporate bond, banking & PSU fund, dynamic bond, long duration and gilt funds, which saw inflows totaling ~ ₹39,000 crore. With an inflow of ₹27,000 crore, the target maturity funds/index funds was the largest beneficiary as investors reallocated funds in the long duration funds to avail indexation benefits,” he added.
Mutual funds also rushed in launches of several target maturity funds in March so that investors can take advantage of the long-term capital gains tax benefit before 1 April.
Equity schemes on the other hand saw net inflows of ₹20,534 crore in March. This was the highest in 12 months.
The March flows were up 30% compared to the previous month.
Monthly contribution from systematic investment plans (SIPs) has grown steadily month-on-month. It stood at ₹14,276 crore, which is also the highest so far.
“India and its growing investor base continue to put faith in the equity markets via the mutual funds route. Equity-oriented mutual funds registered a net inflow of over ₹2 lakh crore in FY2022-23,” said NS Venkatesh, chief executive, Amfi.