The window for tax relief on long-term capital gains up to the 31st of March has had an adverse effect on the manner in which equity mutual funds are dealt with by investors. March recorded the lowest figures in the past 20 months so far as monthly net inflows into renowned mutual funds are concerned, at Rs.2,954 crore. This indicated that a majority of the investors tried to claim the profitable equity mutual fund positions held for more than one year prior to March 31, 2018 by cashing out.
A tax on long-term capital gains at 10% was introduced during the Union Budget meeting this year. The tax is applicable on equities that are held for more than 12 months. Prior to Budget 2018, long-term investments in equities did not attract any tax liability.
The last time that monthly net inflows into equity funds were as low as this was in July 2016. The figures at the time stood at around Rs.2,221 crore. This is the first time in more than 12 months that net inflows fell under the Rs.3,000-crore mark.
Net inflows from July 2017 to February 2018 had remained over Rs.12,000 crore on a monthly basis, and they also exceeded Rs.19,500 crore in August 2017 and November 2017. Experts said that the inclination to sell was so high that redemption requests worth in excess of Rs.36,000 crore were put in by investors during March this year. This figure was over two times the figure recorded in February 2018 at around Rs.17,600 crore.
The overall net inflow of tax-saving funds was Rs.3,703 crore in March 2018, which was a 100+% increase from the collections of Rs.1,585 recorded a month earlier. Since March is the last month of the financial year, there is usually a strong increase in tax-saving investments, and one of the most preferred options is equity-linked savings schemes.