May 29, 2024

INDIA TAAZA KHABAR

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How are multi-asset funds taxed?

7 min read

A reader says, “I am confused about the tax status of multi-asset funds. Some say they are taxed as per slab, some say like a debt fund, and some say an equity fund! Who is right? Can you please clarify?The short answer is that each fund in this category is taxed differently. As the reader mentioned, there are three different ways in which mutual funds are taxed. This is determined by the annual average of the Indian equity or Indian ETFs (that, in turn, invest in Indian equity) holdings in a fund’s portfolio.The annual average is understood to be either the average of the daily holdings or the annual average of monthly factsheet data with ‘annual’ meaning over the last 12 months from the date of redemption. More about this here: Should I pay tax as per slab if my fund’s equity holdings drop to 35% for one month?If the annual average of equity holding is:65% or more, the fund is classified as an equity fund. So, Short-term capital gains (STCG, 365 days or less) are taxed at 15% plus cess. Long term capital gains (LTCG, older than 365 days) beyond Rs. 1 lakh are taxed at 10% plus cess.More than 35% but less than 65%, the fund is a non-equity fund (type 1). STCG (up to 3 years) is taxed as per slab. LTCG (beyond 3 years) is taxed at 10% plus cess with indexation benefit.35% or less, the fund is a non-equity fund (type 2). All capital gains, regardless of age, are taxed as per slab.Now, coming to multi-asset funds. Their only restriction is to hold 10% of three asset classes (equity, bonds, commodities). So, they can be taxed in any of three ways.For example, these are the equity holdings for March 2024 taken from the freefincal debt and hybrid fund screener.FundDomestic EquitiesBaroda BNP Paribas Multi Asset Fund(G)-Direct Plan70.0093Axis Multi Asset Allocation Fund(G)-Direct Plan69.9033Kotak Multi Asset Allocation Fund(G)-Direct Plan66.8014UTI Multi Asset Allocation Fund(G)-Direct Plan66.2066ICICI Pru Multi-Asset Fund(G)-Direct Plan66.1805Mirae Asset Multi Asset Allocation Fund(G)-Direct Plan66.0424Quant Multi Asset Fund(G)-Direct Plan65.8426Tata Multi Asset Opp Fund(G)-Direct Plan65.6542HDFC Multi-Asset Fund(G)-Direct Plan65.5119Bandhan Multi Asset Allocation Fund(G)-Direct Plan64.8998Aditya Birla SL Multi Asset Allocation Fund(G)-Direct Plan64.3030Sundaram Multi Asset Allocation Fund(G)-Direct Plan64.0407Shriram Multi Asset Allocation Fund(G)-Direct Plan63.8884HSBC Multi Asset Allocation Fund(G)-Direct Plan61.5766Nippon India Multi Asset Fund(G)-Direct Plan50.3507Motilal Oswal Multi Asset Fund(G)-Direct Plan41.7835Quantum Multi Asset Allocation Fund(G)-Direct Plan40.0870DSP Multi Asset Allocation Fund(G)-Direct Plan39.5126Edelweiss Multi Asset Allocation Fund(G)-Direct Plan38.9063SBI Multi Asset Allocation Fund(G)-Direct Plan36.6564Bank of India Multi Asset Allocation Fund(G)-Direct Plan35.4197WOC Multi Asset Allocation Fund(G)-Direct Plan34.5547Mahindra Manulife Multi Asset Allocation Fund(G)-Direct Plan24.0428As we can see, some funds hold 65% or higher domestic equity. Some funds hold 35% or lower equity and some between the two limits. Investors will know the tax applicable to their holdings only if they compute the last 12 months’ average from the month of redemption.Some AMCs, especially those that changed an equity fund to multi-asset to comply with SEBI MF categorization rules, ensure that the equity component never falls below 65%. The most prominent example is ICICI Dynamic Fund, which later became ICICI Multi Asset Fund.What should investors do? We recommend investors use equity-oriented multi-asset funds. These are a good alternative to aggressive-hybrid funds with a small exposure to commodities (gold is usually the prominent holding). Please note that these funds would be just as volatile as equity funds.Related Resources:Do share this article with your friends using the buttons below. 🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users! 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We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question. Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!About The Author Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice. Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence. Our new course!  Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! 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So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!Feedback from a young reader after reading Chinchu gets a Superpower!Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. – Arun. Buy the book: Chinchu gets a superpower for your child! How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only! Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool! We publish monthly mutual fund screeners and momentum, low-volatility stock screeners. About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. 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