To get long-term capital gains benefit, MFs re-open overseas investment funds

Mumbai, March 27, 2023 

In January 2022, market regulator SEBI had banned mutual funds investments in overseas stocks as it was inching closer to the $7 billion limit and a separate cap of $1 billion for overseas ETFs.

Mutual fund houses are re-opening their international funds for investment due to the potential loss of long-term capital gains tax benefits if invested after the end of March.

Edelweiss has re-opened seven of its international funds for investment. The fund house had suspended fresh investments in these schemes in February as it was closer to the threshold limit set for each mutual fund by the Association of Mutual Funds in India (AMFI). It will be open for investment till March-end, it said.

Similarly, Mirae Asset Investment Managers has opened subscription in lump-sum manner of its three international ETFs and three Fund of Funds based on these ETFs from Monday.

The existing SIPs and STPs<SU>will re-open from March 29. However, fresh SIPs and STPs will not be allowed, it said.

Siddharth Srivastava, Head (ETF Product), Mirae Asset Investment Managers, said since the fund house has limited room for fresh inflows, these funds are likely to get closed again for subscription, in order to comply with the current regulatory limit and applicable guidelines for the overseas funds.

The Background

In January 2022, market regulator SEBI had banned mutual funds investments in overseas stocks as it was inching closer to the $7 billion limit and a separate cap of $1 billion for overseas ETFs.

Following a representation from the industry and meltdown in global markets, SEBI re-opened overseas investments last June but within the individual mutual fund cap as of last February.

With the steady fall in the international markets and change in taxation rules from April 1, mutual funds left with some headroom want investors to take advantage of overseas investment.

Taxation

From April, capital gains earned from international funds will be considered as short-term gains and subject to taxation based on the investor’s tax slab.

As of now, short-term gains arising within three years from international funds are taxed at the investor’s applicable tax slab, while long-term gains are taxed at either 20 per cent after accounting for indexation benefits or at 10 per cent without indexation.

[The Hindu]