Mumbai, February 9: Despite recent market volatility and imposition of Long Term Capital Gains (LTCG) Tax on equity linked mutual fund products, domestic investors are holding on to their investments.
Market participants and fund managers said redemption pressure on equity linked mutual fund products post these events is nothing beyond normal levels. However, Foreign Institutional Investors (FIIs) have pulled out money from equity mutual fund schemes, similar to the phenomenon that was seen in direct equity.
“Redemption in open ended mutual fund schemes has not been beyond the normal levels by domestic investors. Investors now understand that volatility is a part of the equity market. So, domestic investors with long term outlook are sticking on to their current investment portfolios,” Melvin Joseph, founder of Mumbai-based advisory firm Finvin Financial Planners, said.
He also said that the overall impact of LTCG tax on return of mutual funds would be around 50 basis points. “If the post tax return earlier used to be 12% on an equity-linked mutual fund scheme, it would now be around 11.5% post imposition of LTCG tax,” Joseph added.
“Investors are advised to wait before taking any decision to redeem their investments in mutual fund schemes as tweaking in LTCG tax rates or possibility of introduction of indexation benefit can’t be ruled out during the final approval to the Finance Bill by Parliament,” he added.
Meanwhile, some analysts have pointed out that market volatility has prompted FIIs to pull out some money post budgetary announcements.
“FIIs have pulled out some money from equity mutual fund owing to concerns over returns after the proposed imposition of LTCG tax. However, domestic institutions and retail investors remained net buyers during this period,” an industry analyst said.
According to data released by Sebi, FIIs turned net sellers on this year’s budget day and the day after. While on February 1, net sales were Rs 265 crore, it was at Rs 956 crore on February 2.
“We prescribe our clients to invest in mutual fund through Systematic Investment Plan (SIP) route than putting in bulk amount,” Joseph said.
Notably, the total fund garnered by fund houses through SIP route stood at Rs 59,000 crore in 2017 against Rs 40,000 crore in 2016. Overall, investors infused Rs 2.3 lakh crore in mutual fund schemes during last year.