According to the current SEBI Mutual Fund Regulations in India, an equity mutual fund scheme must invest at least 65% of its assets in equity-related stocks and securities.
Fixed deposit interest rates are on the rise, and the majority of banks are now promising returns that outpace inflation as a result of the Reserve Bank of India's (RBI) uptick in the repo rate of 250 basis points (bps) since May 2022.
A mutual fund is a particular kind of investment vehicle where the fund is run by a professional investment manager who gathers money from investors and allocates it towards stocks, bonds, or other securities to generate capital appreciation to create wealth.
However, as per the proposed changes in the Finance Bill 2023, only those debt mutual funds will lose these benefits where equity investment in such schemes is less than 35 per cent.
The move will be 'detrimental' to the broader agenda of corporate bond market development, reminding that mutual funds were big subscribers to papers issued by companies like Nabard
Debt mutual funds are stripped of the long-term tax benefit if they invest less than 35 per cent of their assets in equities. Such mutual funds will attract short term capital gains tax.