Balanced funds post LTCG

With LTCG being introduced in the latest budget as I wrote in my last post arbitrage funds have become history.

Let us see about how this impacts balanced funds.

Balanced funds as you are aware has a maximum limit to the % of equity that it can have and the fund manager does keep on balancing the debt to equity ratio depending on what's happening in the market.

While there potentially is a large churn in the portfolio since the equity component also includes arbitrage positions it is mostly short term capital gains.

Now as the long term capital gain comes in ... The overall impact is similar to that of the regular mutual fund. Ie the 10% when you sell the balanced fund.

While writing this post some of the concepts got clearer in my head. One needs to reason as to what the logic is and as my father always said teaching someone brings more clarity to you .. that part of the truth finally seems to have hit me once again

Learn the impacts of these changes to your tax ecosystem on your investments.. that's simplefinancialsense

Liquid vs Arbitrage fund now

The modi government it seems is bent on making significant changes to the way Indians save and invest.

Last year they made changes to the home loan interest deductions clearly closing out the benefits that real estate investments receive or the attempt to make epf and ppf exempt exempt tax - which rightly failed .

This year they brought in the long term capital gains tax of 10% in equity markets, which people thought they would not and the markets tanked significantly.

So because of this change some new ways of investments need to be thought through. One thing is that some products are no longer applicable and lose relevance today.

One such product is the arbitrage funds. As the arbitrage funds were equity based they had the benefit of zero tax enabled it to be better than the high tax that would have had to be paid for the liquid funds.

Going forward with the LTCG tax there is no more any tax efficiency on the final in hand returns.

Arbitrage funds are dead.

Focus on the liquid funds.

Changes in the way the policies of the government have significant impact on businesses and products and the way we invest. Reacting quickly to these changes .. now that is simplefinancialsense!