Today, the government has added a last-minute shocker to #Budget2023 In Debt Funds , which affects new investments after 1st April 2023

Debt Mutual Funds purchased after 1st April 2023 will not get the benefit of long term capital gains tax, regardless of holding period.

Earlier, if you redeemed a debt fund after 3 years, you were taxed at 20% with the benefit of indexation.

Despite this new provision, debt funds continue to enjoy some big advantages over fixed deposits:

1. No TDS on debt funds
2. FDs have Tax deducted at source or TDS
3. Debt Fund More flexible than FDs. If you want to withdraw a smaller amount you need to break the whole FD But not in case of debt funds .
4. No tax till you actually redeem the debt fund
5. Set off , carry forward of gains & losses
6. In case of debt mutual funds, you can invest and withdraw any amount on any business day , not possible in FD.

Note :

Debt funds in the provision are defined as those with less than 35% in domestic stocks. So hybrid funds with some equity exposure (above 35%) will continue to get the benefit of long term capital gains tax.

For all of these reasons, the case for debt mutual funds is STILL strong .