Although HNIs comprehend the advantages of mutual funds over other financial products, past problems in the sector still concern them.
The report is based on the inputs of large mutual fund distributors, having an asset under management (AUM) in excess of Rs 1,000 crore, and institutional sales representatives.
Going by the report, HNIs have also been preferring PMS (Portfolio Management Schemes) and AIFs (Alternative Investment Funds) as they find mutual fund products commoditised.
When it comes to systematic investment plans (SIPs), HNI customers have failed to maintain higher ticket SIPs as the returns through the route over the past three years have been minimal. This led to the HNI segment experiencing lower renewal rates of SIPs.
HNIs are preferring bank FDs over the debt mutual fund following the new taxation rules for the funds that kicked in from April 1.
Under the new rule, investment in debt mutual funds that are bought on or after April 1, 2023, will be taxed as short-term capital gains at applicable tax rates. That is, capital gains from debt funds, international funds and gold exchange traded funds (ETFs), irrespective of their holding period, will be taxed at an individual’s relevant applicable tax rate. Debt mutual funds held for more than three years will no longer enjoy indexation benefits and additionally, existing LTCG (Long-Term Capital Gain) benefits will continue for investments made on or before March 31, 2023.
Indexation takes into account the inflation during the holding period of a mutual fund unit and consequently increases the purchase price of the asset and this reduces the tax.