How do you Benefit from Indexation before Mar 31

Finance Bill 2023: Know the impact of Indexation benefit withdrawal

As per the New Finance Bill 2023, the Indexation (Long Term Capital Gains) benefit applicable to the Debt category of Mutual Funds ceases to exist with effect from April 1, 2023. Some of the questions you may have concerning this bill:

What has changed?

What is the impact?

Which funds is it applicable to?

Let’s answer these questions and understand the implications of this on Quantum Funds and how do you respond to this change to make use of the last opportunity to grab the indexation benefit before 31^st March.

What has Changed?

For all investments made in the current financial year before Mar 31, 2023, you can save tax based on the indexation benefit on long term capital gains for a period exceeding 3 years,

From April 01, 2023, onwards, capital gains will get added to your income and marginal tax rate will be applicable, irrespective of your holding period.

Before we understand the details of this change, let’s demystify the indexation benefit.

What is indexation?

Tax on mutual funds depends on the duration of holding period. Long Term Capital Gains Tax on Debt Funds and other funds that are treated as Debt Funds for taxation purposes are taxed at 20% with indexation benefit for a holding period exceeding 36 months (3 years) from the date of investment. Indexation helps investors to adjust inflation in capital gains. It takes into account CII (Consumer Inflation Index) and increases the investment amount. This in turn brings down effective taxation.

Let’s understand this with an example:

Suppose you have invested Rs. 1,00,000 on Mar 31, 2020 for 3 yrs at an assumed rate of return of 8% p.a. After three years, the investments would grow to Rs. 1,25,971, with Gains of Rs.25,971

**Slab rate assumed at 30%. The above calculation is for explanation purposes only. ICoA = Original cost of acquisition * (CII of the year of sale/CII of year of purchase)

Implication on Quantum Mutual Funds

This new bill is applicable to the following schemes:

     1. Quantum Liquid Fund (QLF)

     2. Quantum Dynamic Bond Fund (QDBF)

     3. Quantum Gold ETF (QGF)

     4. Quantum Gold Savings Fund (QGSF)

     5. Quantum Equity Fund of Funds (QEFOF)

     6. Quantum Multi Asset Fund of Funds (QMAFOF)

If you want to lock in the indexation benefit, don’t miss the opportunity to invest before Mar 31, 2023.

What has not changed?

Quantum Mutual funds will still have an edge over traditional modes of investments due to the deferred tax benefit which means that taxation is only applicable on redemption.

Moreover, taxation should not be the only consideration when other benefits are too large to ignore.

To summarize, mutual funds still have an edge over other modes of investment as tax will be applicable only on redemption. Moreover, all other benefits still remain, and the fund performance will not be impacted irrespective of the taxation change.

However, there is still an opportunity to grab the indexation benefit on long term capital gains, if you invest in these Quantum Funds before Mar 31, 2023!

The comparison with Fixed Deposits has been given for the purpose of general information / explanation purpose only. Unlike fixed deposit with Banks there is no capital protection guarantee or assurance of any return or insurance protection in Mutual Funds. Investments in Mutual Funds as compared to Fixed Deposits carry high risk, different tax treatment and subject to market risk. Investors are advised to take investments decision based on his / her investment objectives, risk appetite and arrive at informed decision before making any investment decision. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

Name of the Scheme	This product is suitable for investors who are seeking*	Riskometer of scheme
Quantum Equity Fund of Funds An Open Ended Fund of Funds scheme Investing in Open Ended Diversified Equity Schemes of Mutual Funds	• Long term capital appreciation • Investments in portfolio of open-ended diversified equity schemes of mutual funds registered with SEBI whose underlying investments are in equity and equity related securities of diversified companies	Investors understand that their principal will be at Very High Risk
Quantum Multi Asset Fund of Funds An Open Ended Fund of Funds Scheme Investing in schemes of Quantum Mutual Fund	• Long term capital appreciation and current income • Investments in portfolio of schemes of Quantum Mutual Fund whose underlying investments are in equity , debt / money market instruments and gold	Investors understand that their principal will be at Moderately High Risk
Quantum Gold Fund An Open Ended Scheme Replicating / Tracking Gold	• Long term returns • Investments in physical gold	Investors understand that their principal will be at High Risk
Quantum Gold Savings Fund An Open Ended Fund of Fund Scheme Investing in Quantum Gold Fund	• Long term returns • Investments in units of Quantum Gold Fund – Exchange Traded Fund whose underlying investments are in physical gold	Investors understand that their principal will be at High Risk
Quantum Liquid Fund An Open-ended Liquid Scheme. A relatively low interest rate risk and relatively low credit risk.	• Income over the short term • Investments in debt / money market instruments	Investors understand that their principal will be at Low Risk
Quantum Dynamic Bond Fund An Open-ended Dynamic Debt Scheme Investing Across Duration. A relatively high interest rate risk and relatively low credit risk.	• Regular income over short to medium term and capital appreciation • Investment in Debt / Money Market Instruments / Government Securities	Investors understand that their principal will be at Moderate Risk

* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

Above article is authored by Quantum.

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