‘Indexation’ from mutual funds has gone away: Edelweiss’ Radhika Gupta

New Delhi, July 23 – Radhika Gupta, Edelweiss MD and CEO of Edelweiss Asset Management Company (AMC), said on Tuesday that the concept of indexation has gone away from mutual funds (MFs).

She summarised the changes in MFs following the Union Budget 2024-25, saying that earlier, MFs had different taxation categories.

“Some mutual funds were taxed as long term and short term. Some mutual funds were taxed with marginal rates of taxation and some mutual funds had this concept of indexation. With this Budget, all of this gets simplified and the concept of indexation goes away,” Gupta said in a video posted on X.

What the MF users are now left with are three categories of taxation.

She explained that category one is for equity and mutual funds that have more than 65 per cent equity. They are taxed as capital assets — 20 per cent in the short-term and 12.5 per cent in the long-term, with long-term being anything held for more than one year.

The second category includes funds that hold more than 65 per cent in debt securities and are taxed at the marginal rate with no concept of short-term and long-term.

“The third category is the one that does not fit into either category, like a gold index fund or gold ETF or could be funds of funds investing in equity funds or an international fund or could be a conservative hybrid or hybrid fund,” Gupta noted.

These have taxation in the short-term at a marginal rate, while the long-term is 12.5 per cent, where the long-term means more than two years.

“If you are a long-term investor, instead of attracting the marginal rate of taxation, they now attract 12.5 per cent capital gains tax over a two-year long-term,” she said.