Several schemes in categories like multi asset allocation funds and balanced hybrid funds follow such a strategy. They help investors allocate money in a mix of different asset classes and give investors indexation benefits.
Such schemes found favour with investors who want a lower equity allocation with low volatility. With indexation benefits not available now, these schemes may move toward an equity oriented structure, where they hold a minimum of 65% in equity with the balance in fixed income and gold.
In such a structure, investors will pay short-term capital gains tax of 20% and long-term capital gains tax of 12.5%, if held for more than a year.
Invest and Earn on ET Money – Get up to 9.5% p.a. returns
The budget has also removed the ambiguity around gold mutual funds, gold ETFs, fund of fund, and international equity fund of fund (FoF) which were treated as debt funds from taxation perspective, where investors were taxed at marginal rate. Investors preferred sovereign gold bonds over gold funds, as capital gains on the former was tax free on maturity.
From now on, fund of funds, which invests in equity mutual fund units, gold exchange traded fund (ETF) and international fund of fund will get the benefit of LTCG and will pay 12.5% tax after holding for more than 24 months.
“Fund of funds making investments of more than 65% in domestic equities will be treated on a par with other mutual fund schemes for tax treatment,” says Swarup Mohanty, vice chairman, Mirae Asset Mutual Fund.
Many first-time investors can start their investments through fund of funds.
