What is a “Specified Mutual Fund” according to Finance Bill 2024?
Budget 2024 clarified the definition of a specified mutual fund. This definition will be applicable from 1st April 2025. What about the change in taxation rules? When do they come into force?According to Finance Bill 2024 (as passed by the Lok Sabha on 7th Aug 2024),“‘(ii) “Specified Mutual Fund” means,––(a) a Mutual Fund by whatever name called, which investsmore than sixty-five per cent. of its total proceeds in debt andmoney market instruments; or(b) a fund which invests sixty-five per cent. or more of itstotal proceeds in units of a fund referred to in sub-clause (a):Provided that the percentage of investment in debt and money marketinstruments or in units of a fund, as the case may be, in respect of the SpecifiedMutual Fund, shall be computed with reference to the annual average of thedaily closing figures:Provided further that for the purposes of this clause, “debt and moneymarket instruments” shall include any securities, by whatever name called,classified or regulated as debt and money market instruments by the Securitiesand Exchange Board of India.’”Tax expert Manmohan Sethumadhavan clarifies, “This amendment will take effect from 1st April 2025 only and apply in relation to FY 2025-26 and subsequent years only. However, the change in the period of holding and change in the rate of STCG/LTCG will all apply from 23rd July 2024. Still, the change in the classification of Specified Mutual Funds will apply only from FY 2025-26. So, this adds to another layer of complexity.”What does this mean?Until 31st March 2025, the old definition of a specified mutual fund – “Mutual Fund by whatever name called, where not more than thirty-five per cent of its total proceeds is invested in the equity shares of domestic companies” will apply.The change in the period of holding and change in the tax rates rate proposed in Budget 2024 – slab rate (<2Y) and 12.5% (>2Y) – will apply to funds adhering to this old definition from 23 July 2024 to 31st March 2025. 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