Navigating the New Taxation Rules for Quantum Investors

Each year, the Union Budget brings the hopes and aspirations of a billion Indians to the forefront. This annual financial roadmap reveals how much the country has earned, outlines the new ambitions of “Viksit Bharat,” and highlights the benefits taxpayers, investors, and citizens can anticipate.

The Budget announced on 23 July, 2024 brought in controversial changes such as removal of indexation benefits and changes in tax rates. Further, it has brought in significant amendments to mutual funds taxation and here’s how mutual funds are proposed to be taxed:

How the Budget Impacts Quantum Schemes?

As an investor, it is important to note that the new Budget now divides the fund into three categories for tax purposes.

• The first category includes equity mutual funds and equity ETFs with more than 65% equity holdings.
• The second category consists of funds holding more than 65% in debt securities.
• The third category encompasses funds that do not fit into the first two categories, such as gold ETFs, funds of funds investing in equity, international funds, and conservative or hybrid funds.

Union Budget 2024 – Tax Implications on Quantum Funds

Key Takeaway from Budget 2024

Importantly, the tax changes have created a level playing field to a large extent and hence investors will not be swayed by tax incentives towards products not suitable for them. The various solutions that we at Quantum have tried providing investors were adversely impacted in last year’s budget as they all were clubbed along with Debt funds from a taxation perspective. However, the same has been modified this year and have been provided a much better tax treatment, bringing the long-term tax rate at par with equities except the higher holding period which I believe investors would be fine with.

Hence, the Quantum Multi Asset Fund of Funds should again start attracting investors who want to look out for a better option to Fixed Deposits which have been a losing proposition and hampered due to tax changes. Quantum Equity Fund of Funds would also benefit from investors who want research backed selection to build a portfolio of Equity Funds. Gold ETFs / FoFs would also benefit from investors looking to add the gold diversification to their portfolio in a much efficient manner. Given the tax changes, all the above funds have now become tax efficient as compared to earlier and a level playing field to guide rational decision making for investors.

Long term perspective is a smart strategy for equity mutual funds. Instead of getting distracted by the short-term market responses to the budget - it would be better for the investors to focus on the fundamentals. This is what Quantum has always been pushing our clients to follow and we will continue to do so.

By avoiding market timing, maintaining a long-term perspective, and carefully watching valuations and asset allocation, it can help investors be more successful.

Name of the Scheme	This product is suitable for investors who are seeking*	Riskometer of scheme
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 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

^*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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