Tax fallout: Quant Mutual ‘repositions’ new fund offer

Quant Mutual Fund, which had just this Thursday introduced a new fund offer (NFO) for a Dynamic Asset Allocation Fund (DAAF) that would invest a minimum of 65% in equities and up to 35% in debt, has been compelled to change tack almost overnight due to the changes brought to debt funds’ taxation.

“The fund was initially intended for risk-averse investors, with an equally low risk appetite for volatility, preferring fixed income returns. Therefore, the scheme was endeavoring to deliver superior returns than fixed deposits with a high quality debt oriented portfolio,” the fund house said in a communique late Friday.

Change in plans

In its previous communications, the fund house had said the new scheme would benefit long-term investors by rendering the difference between debt and equity taxation to “an insignificant 66 basis points (0.66%) over a five-year holding period, due to indexation benefit on long term capital gains.”

But with the amended Finance Bill making income from debt mutual fund schemes taxable at income tax rates applicable to an individual’s income tax slab, quant Mutual Fund said “this has significantly affected our earlier positioning and consequently the strategy of quant DAAF from a taxation perspective”.

“In view of this impact, we have unanimously decided to reposition the quant DAAF and modify its taxation from debt to equity due to said amendments to the Finance Bill, 2023,” the firm said, adding that the investment strategy for the scheme is being amended suitably.