Indian Banking Sector - Disincentives To A Large Participant Could Lead To Disintermediation: Systematix

Systematix Research Report

With the Lok Sabha approving the key amendments in the Finance bill, mutual fund debt schemes’ investors would not be able to enjoy long-term capital gain tax (at 20%) with indexation benefits.

The MFs’ investments with up to 35% equity exposure to domestic companies, essentially debt funds, are liable to be taxed as per the individual’s slab rate, at parity with commercial banks’ fixed deposits.

With the parity in tax implications in the MFs’ debt instruments and banks’ fixed deposits, debt funds investors could explore term deposit options with relatively longer maturities subject to the institutional investors’ asset-liability mismatch and fund requirements.

We need to monitor wholesale deposit and institutional term deposit flows and interest rates in the near future.

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