The Mutual Fund (MF) search for the tax affordable date option has reached the Fund of Funds (FOF) segment. At this time there are two date-centric FOFs that invest some part in Arbitraj Funds to provide better tax efficiency. Two other such schemes are to be introduced by 3 March.
The Kotak Fund first offered a new offer in October 2024 by changing its Kotak All Weather Date FOF’s asset allocation structure. The name of this fund has been changed to Kotak Income Plus Arbitraj Fund. Recently, Bandhan, Axis and Aditya Birla Sunlife (ABSL) funds have also announced such offer.
After the change in taxation, the mutual fund industry is exploring possibilities for favorable taxes at a low -risk tax in place of date funds. Date funds have been a favorite of investments for short -term due to low risk and estimates of returns. But in 2023, the benefit of his indexation was taken away.
The benefit from date funds is now taxed according to the income tax slab rate of the investor, no matter what the holding period is. However, the change in the tax structure of the Fund of Fund (FOF) in 2024 has created opportunities for the tax-oriented date-centric FOF.
Any FOF (which invests at least 35 percent of equity (also included equity arbitrage) will be eligible for long -term capital benefits (LTCG) i.e. if the investor is invested for more than two years, then the benefit But 12.5 percent tax will be levied. All four FOFs (who have included equity arbitrage in the mixture) are planning to allocate around 35-40 percent of arbitrage funds and in the remaining date funds.
Deepak Aggarwal, CIO (Date) of Kotak Mahindra AMC said, ‘Kotak Income Plus Arbitraj FOF ensures that date -centered mutual fund unit, money market plans, tripartite repo, cash and cash invested on government securities or treasury bills He remained below 65 percent at all times. The benefit on investment with a duration of more than 24 months will now be considered as LTCG and it will be taxed at a flat rate of 12.5 per cent. This change increases the tax efficiency of long-term investors to a great extent, as this reduces their tax liability and the funds are recognized as a distinct and more favorable alternative to traditional date-centric funds. ‘
Bandhan, Axis and ABSL Mutual Fund have introduced similar schemes, changing the main features of their current date FOF. Bandhan’s All Seasons Bond Fund turned into Bandhan Income Plus Arbitraj FOF on 28 January. Axis All Sease Date FOF is set to become Axis Income Advantage on 14 February. ABSL Active Date Multi Manager FOF will be known as ABSL Date Plus Arbitraj FOF from March 3, 2025.
HDFC Mutual Fund sought approval from market regulator SEBI for a similar fund ‘HDFC Date Advantage FOF’ in September 2024. However, it is yet to be started.
Analysts say that such a offering is suitable for investors with positive views on a date. However, they need to be conscious of the underlying assets of date funds in which FOF invests. Also, it is important to pay attention to their expense ratio as it can be very high.
Rishabh Desai, founder of Rupi with Rishabh, said, “Due to tax profit, such offer can find a place in investors’ portfolio. However, a lot will depend on which date funds they invest and how good their management is. Apart from this, the expansion ratio of the fund should also be justified so that it can compete with other low -risk other investment options. Arbitraj funds have become a favorite option for low -risk investment after change in debt fund taxation.