AMFI demands restoration of Long-Term Indexation benefit for Debt Mutual Funds: Before Budget 2025, the country’s mutual fund industry has demanded restoration of long-term indexation benefits on debt funds. This benefit was abolished in Budget 2024. The Association of Mutual Funds in India (AMFI) has called this an important step to boost investor confidence and investment in debt funds.AMFI has requested the government to reinstate the long-term indexation benefit on all debt fund investments made till March 31, 2023, by restoring the old tax rules.
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Why should debt funds get indexation benefit?
AMFI has argued that this benefit is not just a tax exemption, but a way to neutralize the effect of inflation. AMFI, in its Direct Tax Proposals issued before Budget 2025, has argued that investments made in debt funds generally give annual returns of 6% to 8%. In such a situation, if the inflation rate is close to 5.5%, then the real rate of return available to investors remains only 1.5%. After this, if even this nominal return is taxed, what will investors get? AMFI argues that due to indexation benefit, this burden on investors can be reduced to some extent. Under the old rules, indexation benefit was available if investments in debt funds were held for more than 3 years. But not only was it abolished in Budget 2024, but this benefit was also removed on investments made before March 31, 2023.
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AMFI appeals for justice with investors
AMFI has reminded the government that in Budget 2024, relief of indexation benefit was given to the real estate sector, but this benefit was not given to investors of debt funds. According to AMFI this creates an imbalance. The association says that implementing new tax rules on old investments can be a step that harms the confidence of investors. This will not only affect existing investors, but new investors may also think of staying away from debt funds.
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To take steps to balance the marketDemand
AMFI says that their demand is not only beneficial for investors, but it is also necessary to maintain balance in the market. Restoring the indexation benefit will be a positive step for both the Indian mutual fund industry and retail investors. This will not only restore the confidence of investors, but will also strengthen the mutual fund industry and the Indian economy.
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Contribution of debt funds to the economy
AMFI believes that if indexation benefit is restored, it will help in retaining retail investors in the debt market and help in the development of the Indian economy. Debt funds have been an important part of the portfolios of retail investors. Their objective is to provide stable and relatively safe returns over a long period of time. AMFI has clarified that since Budget 2024, investment in debt funds has declined. In such a situation, if the indexation benefit is not restored, then debt fund investors will suffer losses, which may cause instability in the market.
