Budget 2025: AMFI Seeks Indexation Return for Debt Funds

The Association of Mutual Funds in India (AMFI) has put forward a 15-point proposal for the Union Budget 2025-26. Among these, the top priority is restoring tax benefits for debt funds, including indexation benefits, which were removed in Budget 2024. This proposal also includes revising tax rates on capital gains and redefining equity-oriented funds to include overseas equity fund investments.

The Need for Restoring Indexation Benefits

The mutual fund industry is pushing for the return of indexation benefits, which help reduce the impact of inflation on capital gains. Before Budget 2023, indexation played a critical role in making debt funds more attractive to investors.

AMFI stated, “Debt Mutual Funds on a long-term average basis give returns in the range of 6%~8%. Indexation is not a Tax waiver but a Neutralizer of the impact of inflation. The removal of indexation benefits will have a material impact on Debt Mutual Fund investors. It may be noted that the debt mutual fund investors have been getting taxed at a marginal rate since April 01, 2023, which has already hurt them significantly. Now, the removal of the indexation benefit for grandfathered investments before March 31, 2023, will also hurt old investors.”

The Importance of Favourable Taxation Policies

Restoring indexation and reintroducing long-term and short-term taxation would make debt funds more appealing to retail investors and encourage long-term savings.

Other Key Demands from the Industry

The mutual fund industry also seeks permission to launch pension-oriented schemes like Mutual Fund Linked Retirement Plans (MFLRP), with tax benefits similar to the National Pension System (NPS).

“Allowing Mutual Funds to launch MFLRS would bring pension benefits to millions of Indians in the unorganised sector. A long-term product like MFLRS can play a catalytical role in channelling household savings into the securities market and bring greater depth. Such depth brought by the domestic institutions would help balance the volatility in the markets and reduce reliance on the FPIs.” AMFI stated.

The mutual fund industry hopes the government’s favourable tax measures in Budget 2025 will make debt funds more competitive, promote savings, and support long-term economic stability.

For a detailed analysis of Deloitte India’s Union Budget 2025-26 report, click here to explore the key expectations and growth drivers.

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